For electricity users, no pain, no gain

An advisor to the Prime Minister emphasizes that to accelerate and sustain development of the power sector, there’s no alternative to higher electricity prices.

Thai Phung Ne, a former Minister of Energy, now serves as the Prime Minister’s special envoy for electricity projects. He talked with the investment journal Dau Tu about the relationship between electricity prices and sustainable development of the power sector.

Dau tu: The two reports you make every year after visiting power projects include many suggestions aimed at speeding up the investment. Why have these power projects been so very slow in implementation?

Thai Phung Ne: There are three major difficulties: a capital shortage, slow site clearance and the lack of urgency in the project implementation.

The capital shortage has become serious. I think the best solution to the question is to stimulate development by setting power prices at a level that will induce investments. The state budget can’t mobilize the huge amounts that are needed to build enough power plants, so we must accept price increases.

There are difficulties in site clearance. In some localities, it takes several years, even though only a few households are holding out. The property owners aren’t dumb – they can see that compensation policies are constantly changing.

And then, it’s a fact that investors and contractors lack determination.

Dau tu: Two years ago, you told the Government that if people at the top are not put on notice, it will be very difficult to speed up the implementation of power projects. Can you see any progress in that regard?

Ne: After the Prime Minister got personally engages, the responsible parties became more active. However, here we can see the character of Vietnamese people: they do not follow strict discipline. When projects go slowly, they always blame that on objective reasons, such as the capital shortage and the tardiness in site clearance.

Dau tu: You have talked about “feeding the power industry with higher electricity prices.” What’s your view of the proposal by the Energy Association (VEA) proposal to raise the electricity price to eight US cents per kilowatt/hour?

Ne: The VEA’s proposal aims to ensure a reasonable payback for power investors, that is, profit of at least 10 percent per year on invested capital. Foreign investors have been demanding a payback rate of 15 percent. Only when investors can see a reasonable profit will they be able to arrange financing for these projects.

Dau tu: It seems that the power monopoly, EVN, is seeking bank financing to start some power projects, and thus free up funds for operating expenses?

Ne: That would lead to capital imbalance. Investors need to put up at least 20-30 percent of capital needed for the projects from their own resources, and they need to repay loans from electricity sales. Only if we make that possible will Vietnam be able to attract investment in the power sector.

For the last 15 years, not one foreign investor has invested in the sector, because the electricity price is not attractive.

Dau tu: Yes, but public opinion is really upset with the VEA proposal to raise the electricity price. . . .

Ne: We need to look around us. In China, the current retail electricity price is eight US cents per kilowatt, and it has developed a dynamic industrial sector including many supporting industries.

If we want to grow in the same way, we would be crazy to continue to hold down power prices. The VEA proposal would be implemented over a three year period.- Dau tu

Tags: Vietnam electricity, Vietnam electricity market, Vietnam energy