The FINANCIAL - The changing macroeconomic and sectoral context in Vietnam requires a new approach to financing electricity and gas investments, a new World Bank Group report titled “Maximizing Finance for Development in Vietnam’s energy sector” says.
The study highlights the unviability of the traditional financing model which relies mostly on public investment by state-owned enterprises. Importantly, it presents an action plan on how to unlock new sources of finance, especially from the private sector, based on a comprehensive analysis of investment needs as well as constraints in the regulatory environment including the capital and forex markets.
“Given the limited fiscal space and the reduction of concessional financing available going forward, it will be important for Vietnam to step up mobilizing alternative capital resources for the electricity and gas sectors. The Government should address comprehensively the constraints currently impeding the flows of domestic and cross border private capital into two of the most strategic segments of the Vietnamese economy.” - Ousmane Dione, the World Bank Country Director for Vietnam said.
Vietnam’s electricity sector requires new investments of about US$10 billion annually frontloaded through 2030, higher than the average of US$8 billion for the period 2011–15. Meanwhile, the envisaged expansion of the gas sector calls for an accumulated investment of around US$20 billion between 2015 and 2035.
An enabling environment needed for private players to drive the next wave of electricity and gas investments
While Electricity of Viet Nam (EVN) and PetroVietnam (PVN) will continue to play an important role in developing new infrastructure, the vast majority of new gas and electricity investments will need to come from private players, the report argues. Moving into this direction is in line with the Government’s strategy and objectives of financing the energy sector in the future.
“We observe a large interest from private investors to participate in the vast growing energy market in Vietnam, especially in renewables and LNG development. They are willing to invest as long as the projects are well-structured and bankable. What investors need is a transparent and stable regulatory environment which incorporates a proper risk-sharing mechanism among all parties" - said Franz Gerner, the World Bank’s Lead Energy Economist and the study’s lead author.
To remove constraints and maximize financing available for electricity and gas investments in Vietnam, the report proposes a well-coordinated policy effort around three pillars:
1. Develop a major PPP/IPP program for new power generation as part of the development of Power System Development Plan 8 to build investor confidence
2. Enhance the financial standing and credit worthiness of EVN and PVN to enable them to access commercial finance without government support
3. Increase the availability of local currency financing which is critical for both project finance and corporate project finance