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Copyright © 1999-2013  Vietnam Venture Group, Inc. All rights reserved.   Updated March 3, 2004

Power Industry Review - 2000

By Bill Blake**
See Publisher's Note

Vietnam seems incapable of making the necessary changes for the moment.  In this case, the “moment” has exceeded 14 years since the 1986 doi moi policy of renovation was first introduced. 

The overabundance of existing power projects in early 1999, coupled with the severe downturn of industrial use and growth brought about by the regional and local financial crisis, allowed the Vietnamese State to proclaim projected surpluses of power as if something had been done correctly.  

In the later part of the year we read about more thermal power station pullouts with an emphasis on hydro units as the suggested solution to the high costs of thermal energy. As if to confirm the problems, for the past two years we read about the problems in building the 400 km pipe line from Nam Com Son to utilize the now ready trillions of cubic meters of off-shore natural gas at the BP-Amoco/Statoil fields. 

Now, as Vietnam enters the start of the rainy season, we read

Water in Reservoirs Falls, Power Shortage Looms

Reservoir water levels in hydroelectric plants have been falling sharply due to small inflows. In the major reservoirs of Hoa Binh (in the North), Tri An, Thac Mo and Da Nhim (in the South), water levels are 3.1-11 meters higher than dead level.

As a result of this, electricity companies have had to reduce power supplies to the South by 100-150 MW a day. Supplies to Ho Chi Minh City have reduced 60-80 MW.

Thermoelectric plants must run at maximum capacity to take up the slack from hydroelectric generators. Total additional supply to the South totaled 2,020 MW on May 9. Power consumption on that day was 40,066 MW. (Liberation Saigon May 11, 2000)*

Years ago investors offered the State the opportunity to build 100-megawatt portable power stations placed on barges that could be transported to places with critical shortages as needed.  Many reasons, none of them sound, were given for rejecting the offer -- several times. 

The State for six years continues to suffer the fallout from moving its first oil refinery from Vung Tau (suburban HCMC) to Dung Quat (ex rural Quang Nai).  The issue for the State has always been a shortage of revenue to complete the job itself.  Knowing foreigners applaud the State’s desire to lift itself by its own bootstraps, to place huge projects in remote areas to force development. 

Many other nations do the same. One of the best-known projects is in America where the Great Hover Damn transformed the dessert and allowed the City of Las Vegas to grow as if from the sand.  

The difference is that those nations complete their public work with their own public funds. A profit motive is not present.  There is only the need of those nations to provide energy to their public and industry sectors, and open new lands to development. 

Vietnam cannot do the same unless and until its own wealth grows in exponential terms.  That can happen but it first needs massive reforms to encourage investors to enter, and an operating Bilateral Trade Agreement (MFN or now NTR) with America to provide the largest market in the world for Made In Vietnam products. 

Vietnam instead seeks to bully foreign investors into throwing their money into its rice paddies. “If you love the nation,” goes the rationale, “then give us your money and don’t worry about profits.”  

The answer is as apparent as are the many conical hats on the paddy workers: foreign investors INVEST for a good rate of return, PROFIT.  We do not love Vietnam, and we will not throw our money into your rice paddies, or the bank accounts of your many corrupt officials.

When Vietnam tries its own social structuring of its landscape to meet its eco-geo-politico-socio needs with funds from foreign investors, particularly in the powerful oil and gas sector, it consistently runs into a solid wall of hardened petroleum. 

Read about the latest escapade where the State elected for it own reasons to move a power project: 

Enron Project Delayed

The BOT project to develop a 475 MW power plant in the Southern province of Soc Trang, which involves the US Enron International, will be delayed to 2005, according to a document from the Government Office.

Approved in 1998, the project was expected to build a power plant in Soc Trang using liquid fuels until there is gas carried ashore. However, the Government wants Enron to relocate the plant from Soc Trang to Ca Mau as Vietnamese corporations will develop an integrated gas-power-urea complex in this province and Enron so far has rejected this. Therefore, it will not go ahead before 2005 as during this time Vietnamese corporations do their job.

The Government has asked PetroVietnam, Electricity of Vietnam and the Vietnam Chemical Corporation to draw up a project for the complex to be submitted for approval, provided the efficiency of power and urea trading is guaranteed. (Saigon Times Daily May 15. 2000)* 

The reasons for all the problems and delays is merely economics: private investors cannot forecast adequate profits to make the large investment in Vietnam due to the refusal of the State to pay the sums needed. The State subsidizes power in Vietnam, and does not want to take State funds to pay profits to foreign investors. 

France’s Total was the first to pull out. When the State moved the refinery to distant Dung Quat, the cost of transportation of crude 500 km north, and the added cost to transport finished product 700 miles further north or 500 miles back south to the existing markets, made the price of the finished product higher than the cost to import finished product. 

As the price of crude and finished product grow, there is only a small chance that the economics of the refinery will improve.  Oil prices have not ever been a stable commodity. 

Others have tried to work out a profit scheme but the State refused.  Russia, with geo-political reasons of its own, took over the project in spite of the poor economics.  But then, that is what has gotten Russia into its own financial mess.  Now, no one even tries to speculate how Russia will (i) find the money needed to buy the best technology possible, (ii) make other payments to add up to its $500 ++ million obligation, or (iii) run the plant on a profitable basis. 

No one doubts Vietnam’s desire to pay in its own $500 million with its worthless land.  Presuming that such will account for more than half that number, it will increase the burden on the two partners to raise far more than the projected $500 million needed above the Russian and Vietnamese $1 billion to complete the project.  

Way back in 1994, Total’s projection was that the project needed $1.5 billion in cash, but Vietnam refused to accept that number.  Today’s numbers are even more staggering. 

So, the foreign investors take their money and build projects in other lands where those states will pay their profits, or where the population is able to pay the higher cost of energy. And if that is not enough, we now also read that in spite of the power shortage, in spite of the State’s interest in developing the nation, there is recognition of the need to raise the price of local power: 

Concerns Over Power Price Hike

Under pressure from international capital providers, Vietnam's power industry is to introduce new electricity prices, the sixth price adjustment over the past six years. The increase is triggering concerns among the public.

It is said that from July this year, the average electricity charge will be raised to 6 cent/KWh from the current 5.2 cent. This will hurt the industrial sector and residential users alike.

According to the Ministry of Industry, the industrial sector, accounting for up to 50% of the country's total electricity demand, will have to pay an additional VND1,200 billion/year ($85.7 million) for electricity. This will push production costs up and reduce competitiveness. Purchasing power will therefore continue falling.

For nearly 80 million people, the power charge hike comes at a difficult time. Experts say that the cause for the increase--to make prices comparable with other countries in the region--is not reasonable. While daily per capita income averages $2.3 in China, $2.5 in the Philippines, $2.9 in Indonesia, and $5.6 in Thailand, the figure in Vietnam is just $1.

The power industry is one of the biggest profit earners in Vietnam with a profit ratio of 12.7%. Every year, it needs around $2 billion for new investments, which mostly comes from foreign sources.

Domestic sources of capital are, in fact, abundant, but they remain locked away in local banks or tucked under people's mattresses. The power industry should try to make better use of domestic capital supply instead of relying too much on international donors.

Raising the power prices at the current time does more harm than good and may result in socio-economic turmoil. (Vietnam Economic Times May 10, 2000)*

 The problem is many folded and there is no solution in site, other than real, true reform. That may take another moment.

But then, it has been only a fourteen-year moment so far.

*With thanks to Nguyen Pham Muoi  [muoinp@fpt.vn] All Rights Reserved – Vietnam Panorama


**  Bill Blake is not the author’s real name, who asks for business reasons that we keep it confidential. The author is an expert in the current events of Vietnam, and is also a professional in the area of information about the Oil & Gas, and Power Industries of Vietnam. 

[Publisher’s Note: we do not share all the views expressed by the author, whose views remain his/her own.  We closely follow this industry as one of the 17 sectors in our own portfolio of interest.  It has always been and remains our view that the pragmatic people of Vietnam will change to meet almost any challenge. The writer here certainly put a strong challenge to the leadership of Vietnam that we feel they are capable of meeting. - VVG]  back to top

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