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Lawyer in Vietnam Oliver Massmann RETHINKING POWER AND ENERGY
Competitive Electricity Wholesale Market for Vietnam
- Decis...
In countries where stable electricity supply is invested by private sectors for prospect profits,
liberalization of the wh...
been set at a low level to attract donor support by use of their concessional loans with grant facilities,
rather than pri...
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Lawyer in Vietnam Oliver Massmann RETHINKING POWER AND ENERGY Competitive Electricity Wholesale Market for Vietnam - Decision No. 8266/QD-BTC issued on 10th August 2015

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Lawyer in Vietnam Oliver Massmann RETHINKING POWER AND ENERGY
Competitive Electricity Wholesale Market for Vietnam
- Decision No. 8266/QD-BTC issued on 10th August 2015

Published in: Law
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Lawyer in Vietnam Oliver Massmann RETHINKING POWER AND ENERGY Competitive Electricity Wholesale Market for Vietnam - Decision No. 8266/QD-BTC issued on 10th August 2015

  1. 1. Lawyer in Vietnam Oliver Massmann RETHINKING POWER AND ENERGY Competitive Electricity Wholesale Market for Vietnam - Decision No. 8266/QD-BTC issued on 10th August 2015 The FOREIGN INVESTOR GROUP offers the following commentary and suggestions to MOIT following the publication of Decision No. 8266/QD-BTC. According to Decision No. 8266/QD-BTC, the timing of full implementation has been determined to be 2019. FOREIGN INVESTOR GROUP suggests that in order to maintain a stable power supply, an urgent priority to attract private investment to the energy market in Vietnam is needed. Therefore, FOREIGN INVESTOR GROUP asks MOIT to accelerate the implementation of this key market reform. While Vietnam Electricity (EVN) remains the monopoly buyer of power, its financial status continues to cause concern for investors of new power plants who are required by law to sell power to EVN. FOREIGN INVESTOR GROUP suggests MOIT to consider new methods to enhance the creditworthiness of EVN, in addition to continued effort to increase power tariffs to cover costs of supply. Foreign donors, who wish to support sustainable energy development in Vietnam, may be willing to improve the creditworthiness of EVN with specific risk guarantees where the power seller is a renewable energy project. A mechanism which could engage foreign donor support in this way would be very welcome and end the current burden on the Ministry of Finance providing guarantees to all power sellers. In particular, developers of renewable energy and small power plants in Vietnam need support because the increased cost of commercial debt, guarantees, and delays are a significant barrier to investment. FOREIGN INVESTOR GROUP previously noted that many energy resources, in particular wind power, are not included in the remit of the competitive wholesale market. FOREIGN INVESTOR GROUP also noted the reference to other detailed regulations that would determine how wind power is promoted in Vietnam. FOREIGN INVESTOR GROUP suggests that wind power could be included in the market and points to the successful development of wind power in other developing countries, such as Mexico, under "direct” power purchase agreements (PPAs). FOREIGN INVESTOR GROUP would welcome urgent guidance from MOIT indicating whether such PPAs may be implemented in Vietnam and incorporated into the structure of the competitive wholesale market. FOREIGN INVESTOR GROUP would welcome the opportunity to continue its dialogue with MOIT on this subject and to provide support from the wider international experience of its members. An essential element of a functioning open power market is that the key players operate independently of each other and their relationships are governed by commercial contracts that are transparent. FOREIGN INVESTOR GROUP notes that the five regional power buying corporations listed in Decision No. 8266/QD-BTCare within the legal structure of EVN and therefore associated with the largest producers of power in Vietnam, EVN's power generation companies (GENCOs). Until the GENCOs are substantially equitized (more than 50% of the equity being held by non-state shareholders), FOREIGN INVESTOR GROUP doubts that an independent wholesale market can be established. While the timetable to begin initial partial equitization of a minority share of the GENCOs is well-known, FOREIGN INVESTOR GROUP would welcome guidance on how MOIT intends to complete the dis-establishment of GENCOs and the five PPAs from EVN. FOREIGN INVESTOR GROUP notes with enthusiasm the possibility of other large power consumers becoming power buyers and would suggest that to encourage interest in this important role in the market that MOIT immediately publishes guidance on what criteria such companies must meet to satisfy MOIT's "requirements” to take on this role.
  2. 2. In countries where stable electricity supply is invested by private sectors for prospect profits, liberalization of the wholesale electricity market may bring about a reduction in electricity price thanks to the competitive environment. However, at this moment, if Vietnam faces with this kind of competition for electricity, we are concerned that necessary investment in power industry including electricity transmission cannot be secured, but also leads to a higher retailing electricity price. Besides, in the context of insufficient electricity generation comparing to the growth in the electricity demand, especially the shortage in electricity supply in the South that most of our manufacturing companies and all members are experiencing, we firmly expect for the secured stable electricity supply. In this field, in order for the 7th Development Plan (PDP7) to be implemented steadily and the electricity capacity expanded, we hope that measures to invite foreign investment such as long-term Purchase Price Allocation (PPA) contract or Government Guarantee and Undertaking (GGU) between Government and EVN should be implemented. Finally, the energy regulator also should be wholly independent of executive government influence to play the necessary role of oversight of a de-regulated market. FOREIGN INVESTOR GROUP would urge consideration to giving Electricity Regulatory Authority of Vietnam (ERAV) a status which is entirely independent of MOIT as in other developing country's energy markets. 2. Electricity Tariff Road Map Even though the Prime Minister's decisions on electricity tariffs since 2012 have helped the market, EVN continues to operate at a loss, and electricity costs remain the lowest in the region. This limits direct investment in new power sources, grid infrastructure, and discourages energy efficiency efforts by customers and businesses. FOREIGN INVESTOR GROUP suggests MOIT continues adjusting energy tariffs to create sustainable power sector development in Vietnam. Because low-income citizens will suffer from higher tariffs, FOREIGN INVESTOR GROUP suggests that the Government subsidize them (30kWh/month free) and ensure the rural population does not suffer from power cuts favoring industries. Business would benefit if MOIT would share a road map of Retail Power Pricing as it moves to prices decided by market with Government management. This will open access to required private investment, both domestically and internationally, and will stimulate greater energy efficiency efforts from end-use customers. FOREIGN INVESTOR GROUP supports the use of donor funds to off-set Government guarantees as the Government reaches it limits in the coming year. 3. Renewable Energy As Minister Hoang stated on 9th June 2015, fossil fuels are a finite resource and will eventually become economically unfeasible, forcing Vietnam to import energy and threaten its energy security. Environmental, Social and Public Health protection is an issue further encouraging Vietnam to expand renewable energy (RE) development. FOREIGN INVESTOR GROUP congratulates authorities for Prime Ministers Decisions on Solar and Biomass. Our detailed comments to the Draft Decision on Mechanism to Support Development of Solar Energy Projects in Vietnam is an annex to this paper. The 5% RE target set for 2020 could increase to much more than 5% with proper incentives on RE production, such as solar and wind power. FOREIGN INVESTOR GROUP feels RE is best positioned to support Vietnam's current energy needs due to its scalability during a short time frame. In order to bolster RE, the Power and Energy Working Group supports the creation of an attractive investment environment for these sectors. As such, the Group backs the recommendations put forth by MOIT consultants (UNDP and GIZ), which calls for an increase in the feed-in tariff (FIT) levels for solar and wind energy and simplification of the application process. Our main comment on solar is also the low $0.11/kWh electricity tariff for grid connected solar power projects. The present RE tariff levels seem to have
  3. 3. been set at a low level to attract donor support by use of their concessional loans with grant facilities, rather than private investments. 4. Direct Power Purchase Agreements The Power and Energy Working Group has shared information to MOIT consultants working on Direct PPAs option between electricity end-users and independent Vietnamese power producers. There is high interest of implementing this model from Vietnamese private developers and businesses, and providers of technology, as well as finance banks. Direct PPAs have worked well in Mexico, India, and Brazil, especially in areas not needing Government Guarantees. 5. National Power Master Plan VII The Power and Energy Working Group looks forward to receiving the updated National Power Master Plan VII for commenting on as mentioned by MOIT on 15 May, 2014. 6. EVN Rescue Plan The EVN Rescue Plan has been updated by EVN and plans to be published in September 2015; FOREIGN INVESTOR GROUP looks forward to receiving a copy. FOREIGN INVESTOR GROUP understands from the World Bank that the 10 year roadmap of reforms that EVN should take to meet certain financial indicators and standards. But as above, a road map must come from the final authority. 7. Exploitation of Natural Resources The Power and Energy Working Group emphasizes that the proposed strategy to support Vietnam's successful exploitation of natural resources for stable energy supply is in-line with the expected realization of Free Trade Agreements (FTAs) while strengthening the private sector and small and medium-sized enterprises (SMEs).The expected boost in Vietnam's GDP and economic development, which is expected as a result of FTAs, will be founded on aliable power supply. 8. Coal Policy Lastly, the Power and Energy Working Group is concerned about the slow progress of the planned increased coal policy over rapid reductions in cost of Vietnam's natural resources of natural gas, sun and wind. As stated above, the Build-Operate-Transfer negotiations are long and complex. The scale up of coal will require a major increase in infrastructure by 2020 to import 38 million tons. FOREIGN INVESTOR GROUP is not clear who pays for the needed infrastructure for coal imports. Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC. THANK YOU !

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