Electricity supply for industrialization and modernization: opportunities and challenges

Vietnam Business Forum would like to introduce an article written by Mr. Pham Le Thanh, Director General of Vietnam Electricity Group (EVN).

EVN was established on June 22, 2006 by Decision 147/2006/QD-TTg and 148/2006/QD-TTg of the Prime Minister on the foundation of former Vietnam Electricity Corporation and member companies. According to the statute approved by the Prime Minister, EVN is an economic group of multi-sector and multi-ownership, a parental company concentrating on three main industries: energy, public telecommunication and electrical mechanics. By 2010, EVN has 87 member units and over 98,000 workers.

Thanks to the guidance and support of the Government, EVN has successfully played its role in supplying power to socio-economic development nation-wide. EVN has recorded important successes in business activities and development of power grid as recognized by Conclusion 203/TB-VPCP of July 20, 2010: “With the guidance and support of the State and efforts of related enterprises, energy sector has made big steps forward in the past 10 years ever since 2000 with capacity and output four times bigger. Several objectives of the development strategy have been achieved or exceeded the plan”. In 2010, electricity output and import by EVN is over 97 billion kWh, 1.87 times of 2005, or 4 billion kWh more than the target set by the Politburo on electricity development plan in 2004-2010 and vision of 2020.

Commodity electricity was 85.4 kWh with average supply of 981 kWh/ person/year, 1.8 times more than 2005, average growth rate of 13.7% in 2006-2010, or double of GDP growth rate. Presently EVN sells electricity to over 16.7 million clients. By the end of 2010, the electricity capacity will be 20,900 MW. In 2006-2010 the capacity increased 10,300 MW (1.98 times that of 2005). Concerning power grid, EVN has completed 110-220-500 kV projects with some thousand kilometres of cable, ten thousands of transformer stations of MVA and ten thousands kilometers of medium and low tension cable nationwide. EVN investment capital in 2006-2010 is VND202,100 billion, in 2010 alone VND58,606 billion.

In implementation of Resolution of X Party Congress: “By 2010, over 90% of peasant households have power supply”, in 2006-2010, EVN has invested some VND10,000 billion to supply electricity to rural and remote areas. By December 31, 2009, 100% of districts, 97.57% of communes and 95,08% of people nationwide were supplied with electricity or 5.08% more than the target set by the X Party Congress. Rural electrification has changed the face of rural areas and contributed to the poverty reduction programme.

Though achievements are most encouraging, the demand for development is still a real challenge to EVN to play the main role in power supply for socio-economic development at the same time ensure its sustainable development as leading economic group of Vietnam. EVN is committed to constant renovation and integrate deeper into the world economy. Basing on development orientation of the energy sector mentioned in important documents of the Party and State (Conclusion 26-KL/TW of October 24, 2003, Resolution 18-NQ/TW of October 25, 2007 of the Politburo, Decision 176/2004/QD-TTg of October 5, 2004, Decision 26/2006/QD-TTg of January 26, 2006, Decision 110/2007/QD-TTg of July 18, 2007, Decision 1855/QD-TTg of December 27, 2007 of the Prime Minister), development strategy of 2007-2015, orientation to 2025 of EVN has pointed out four key issues which dominate the development of EVN and the whole power sector of Vietnam, that are (i) to ensure national energy security and contribute to national defence and security and develop national independent and sovereign economy; (ii) to apply market price of electricity so as to encourage investment for energy development, separating social policy from electricity prize; (iii) to develop step by step electricity market; and (iv) to complete the programme of bringing electricity to rural and mountainous regions to attain the objective of supplying electricity to almost all peasant households by 2020.

First, national energy security needs to combine energy development with socio-economic development and national security and defence. Energy development must be a step ahead with sustainable and diversified development, using local resources and reasonable import-export, encouraging investments in energy generation and distribution with EVN and some State owned economic groups playing the main role. The present task is to implement the national energy development plan of 2006-2015 in vision of 2025 in which EVN will invest in 48 energy projects with total capacity of 22,748 MW (38.3% of the total development plan) and VND475,000 billion, and power grid with VND239,000 billion. It is a huge investment with real challenge.

Second, the application of market price instead of subsidized price in production and consumption will encourage investment and saving, separating public utility from business activities. It also ensures long-term financial balance, capital management and payment of EVN and other investors and maintains national energy security. The big investment by EVN (some VND715,000 billion to 2015) is most vital.

Third, in implementation of Decision 26/2006/QD-TTg of January 26,2006 of the Prime Minister, the development of energy market will be in three stages with experiments and perfection: competitive power generation market (2009-2014), competitive wholesales market (2015-2022), competitive retail sales market (after 2022). It is clear that the establishment of energy market must be combined with competitive markets of coal and gas-fueled power, causing no problem to power supply for socio-economic development and in line with the application of market price. In recent years, EVN has initiated experiments on energyy market to train member units on market rules. Currently, Ministry of Industry and Trade is accelerating the establishment of competitive energy generation market (Conclusion 203/TB-VPCP of July 20, 2010).

Fourth, the power distribution to rural and remote areas in recent years has helped transform local economic restructuring and improve poverty reduction programme and living conditions of the people. EVN is implementing four big power projects financed by World Bank worth US$370 million and nearly VND2,000 billion to supply power to rural areas in five provinces of Central Highlands, and Khmer people in Tra Vinh and Soc Trang provinces. It is also preparing power projects in Dien Bien and Son La provinces. Since June 2008, EVN has connected all power supply units of cooperatives to sell directly power to farmer households (7.4 million households in 5,300 communes) to ensure subsidied power price for farmers. The challenge is the mobilization of big capital (some VND19,000 billion) for upgrading of distribution network which is in poor conditions, unsafe and wasting electricity. In the coming years, big investment is also needed for developing distribution network to remaining 5% of farmer households.

The four problems are also objectives, tasks and basic solutions inter-related and essential for sustainable development of EVN and the power sector in general.

Presently, Vietnam is preparing for 2011-2015 socio-economic development plan and 2011-2020 development strategy with economic growth rate of 7-8% a year. To attain those goals and make Vietnam an industrialized country by 2020 as set forth by the Resolution of X Party Congress, power supply is the vital issue. From 2011 to 2020, the national energy development plan will meet the increase in power demand of 14-16% a year with investment capital of US$98 billion. It will be a big task for EVN with investment of US$52.3 billion in power generation and distribution and other investors with some US$45.7 billion.

To ensure power supply for national development, EVN always welcomes and supports investors to develop power stations to increase power supply in Vietnam. EVN will continue the cooperation with Vietnamese and foreign investors in the development of power generation projects, in the negotiation on power purchasing agreements (PPA) and other technical agreements such as power connection, measurement, etc. EVN also hopes that investors will observe current regulations of Vietnamese Energy Law, Investment Law and other related legal documents on independent power projects namely Decision 30/2006/QD-BCN of August 31, 2006, Decision 2014/2007/QD-BCN of June 13, 2007 of Ministry of Industry (now Ministry of Industry and Trade), Decision 18/2008/QD-BCT of July 18, 2007 of Ministry of Industry and Trade. EVN also hopes that investors will implement and operate projects properly to ensure reasonable electricity price in the interests of both investors and society.

ENV believes that with the assistance of the Party and Government, better policy and mechanism, opportunities will be wide opened for Vietnamese and foreign investors to increase power supply for national economy and social welfare of Vietnam. – VCCI

Tags: Vietnam electricity, Vietnam energy, Vietnam power shortage