State will continue to dominate power market

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A man prepares to deliver a generator to a customer in front of an electrical appliances shop in downtown Hanoi on Monday. In energy-hungry Vietnam's big cities, businesses and families often use generators to deal with power shortages in the hot summer months.

State utility Electricity of Vietnam will continue to control a majority stake in the nation's power market for the next ten years.

For years, industry insiders and analysts have been calling for measures to break up the state-owned utility so that the country can move toward a competitive market, ending recurring electricity shortages.

At the moment, however, officials say it's not the time.

EVN, as the utility is often known, is the sole power distributor in Vietnam and accounts for 55 percent of the country's generation capacity. If power plants in which the group holds a majority stake are also included, EVN actually holds up to a 70 percent share.

But under a new master plan for the development of the local power sector by 2020, EVN will only have its output share reduced slightly, by 5 percentage points.

It would be great if other producers could contribute to half of the power supply, but it's not possible because EVN will continue to control the lion's share of the market, said Ta Van Huong, former director of the Energy Department under the Ministry of Industry and Trade.

To have real competition, power plants have to be independent from the state-owned company, he added.

"It's not that the government meant to sustain a monopoly, but the problem is the monopoly can only be eased when the market becomes more competitive and more large investors enter into it," Deputy Prime Minister Hoang Trung Hai told the press last weekend.

Until then, a premature transformation to end the monopoly could compromise supply, he said.

"Before the government removes itself from the market, it's necessary to make sure regulations are in place and private investors are ready," Hai said. "But then investors are only willing when prices are reasonable."

Power prices are now determined by the government, whose subsidies have kept local prices the lowest in Southeast Asia. After a rise of more than 15 percent in retail prices in March, EVN still complained that it's not making any profit and has had difficulty financing new plants.

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The government has already approved a new mechanism which will allow the state utility to adjust power prices once every quarter based on market supply and demand, instead of once a year.

But last month, it decided to delay the policy, fearing that price hikes would make it even harder to control inflation.

Too ambitious

As an attempt to curb power shortages, the new Master Plan 7 aims to add 5,000 megawatts of electricity, every year, to the national system.

But experts said the plan is too ambitious, considering the power sector fell short of the targets set under the 2006-2010 plan.

During the five-year period, the country was only able to produce 65.3 percent of the additional 9,258 megawatts it had planned to generate. At the same time, new transmission grids expanded by just half of the plan's target.

EVN was assigned the task of building 13 thermal plants. Later, it passed on 11 projects to other investors. Based on the progress so far, only five of the 13 plants are expected to be completed by the end of 2020.

Tran Viet Ngai, chairman of the Vietnam Energy Association, said many goals written into the new master plan are not viable either.

Even Hai believed the plan would require a lot of effort, from all government agencies and provincial authorities.

"Master Plan 7 is definitely hard to complete," the deputy prime minister said. "It's difficult to raise funds for 5,000 megawatts, every year, when both local and global economies are having problems."

Hai also noted that the costs to build power plants will continue to rise.

According to the Ministry of Industry and Trade, the total production and transmission costs for electricity before it reaches end users will be 8.8 cents per kilowatt-hour in 2020. The current average retail price is 6 cents.

No shortfall

The new plan envisages a total power supply of around 330 billion kilowatt-hours in 2020, enough to meet the needs of local consumers.

Thermal power is set to account for 70.8 percent of the supply, followed by hydro power at 19.6 percent. The country's first nuclear power plant is scheduled to begin production in 2020 and will supply 2.1 percent while the rest will be covered by imports and renewable energy.

Vietnam faced an annual shortage of about 3 percent from 2006 to 2010, but this year the government aims to ensure adequate supply. EVN has been ordered to avoid rotating blackouts this summer.

However, since power demand is projected by the government to rise by 15 percent a year in the next five years, the country may not escape outages so soon, given the slow progress of new power projects.

While policy makers try to put an end to the power shortage problem, private foreign firms are looking to capitalize on any shortfalls.

A seminar organized by UK Trade and Investment in Ho Chi Minh City on Tuesday attracted a large group of local business executives looking to learn about a new trend of using temporary power solutions to survive power cuts.

Officials from Aggreko, a leading UK rental power firm that provides generators and transformers for industrial purposes, told local executives to "be prepared" as new power is not coming online fast enough to meet increasing demand.

Brano Kollar, Aggreko's business development director for Asia, believed his company is among the first to launch rental power services in Vietnam and hinted at a plan to open a branch here to cater to power stability needs in the business sector.

Tim Brownbill, director of the UK trade agency, said more investors will come to Vietnam over the next year.

Apart from a favorable business environment and legal framework for investors to operate within, Brownbill said Vietnam's electricity supply will be a crucial factor for attracting investment.

"Nothing happens without power," he said.

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