(EnergyAsia, August 25 2011, Thursday) — Vietnam could face further energy supply shortages as coal miners and power companies are struggling to complete projects in the face of financing difficulties and rising interest rates at around 20%.
Banks are unable or unwilling to provide loans to the country’s domestic coal and electricity companies, said the Vietnam Energy Association (VEA) which recently organised a conference to address the issue that has affected even large players.
State coal miner Vinacomin has expressed concern that it may have to delay the opening of new mines as it is unable to meet the minimum 30% capital deposit under a new law on minerals extraction that took effect on July 1.
Amid rising costs, the company said it would need to deposit at least US$120 million for the minimum US$400 million needed to start up a mine.
Vinacomin’s inability to meet its production targets, in turn, could jeopardise the country’s plan to expand its much needed power generation capacity, the bulk of which will be coal-fired. State Electricity of Vietnam (EVN) has projected that it will need an additional supply of up to 40 million tons of coal by 2015.
Vinacomin is in no position to supply that amount as its mines are depleting rapidly. It will also be challenged to import coal as it is insufficiently capitalised to compete against China, India and the region’s other big traders.
Another power company and contractor, the Song Da Group, which is building a hydropower plant, has also admitted that it is struggling to deal with the country’s capital shortage and payment delays.
The company said EVN has provided an advance of only 200-billion dong for the proposed 1.2-trillion-dong Lai Chau hydropower plant. (US$1=20,500 dong). Songda said it has not started work on the delayed project as this amount was too small.
Acknowledging that it is facing financing difficulties, EVN has asked the government to issue US$1 billion of bonds to international investors to help kickstart the project.
EVN is under increasing pressure to expand Vietnam’s coal-production and electricity-generation capacities to keep the economy growing by at least six percent a year this decade. The power monopoly has projected that the country’s electricity demand will grow by 15% a year for at least the next five years, with coal overtaking hydropower as the main energy source.
EVN said the country’s spreading electricity shortages will affect the manufacturing sector and contribute to the slower 6.5% growth of the Vietnamese economy this and next year.
Vietnam’s electricity demand has been growing at a faster rate than its generation capacity over the last five years.
Between now and 2015, the country’s electricity consumption is expected to nearly double to 175 gigawatt-hours (GWH) from 98 GWH, while supply will expand at a slower pace from 110 GWH to 196 GWH.
Coal export tax to rise to 20% from September 11
Struggling to meet domestic energy demand, Vietnam said it will raise the export tax on coal from 15% to 20% from September 11.
According to the Ministry of Finance, the higher tax will help slow down the country’s export of its dwindling coal reserves at a time when it is expanding its coal-fired power-generation capacity.
Vinacomin has warned that the country could soon become a net coal importer after it bought in its first cargo from abroad in June. The 9,575-ton cargo of thermal coal was imported from Indonesia.
The company has predicted that Vietnam will reduce its annual coal exports to three million tons by 2015 from 16.5 million tons this year and 17.8 million tons in 2010, while annual imports will rise to 7.7 million tons by 2015.
Reflecting the country’s rising energy costs, the government raised electricity prices by 15.28% from March 1 2011.
Electricity producers and consumers slam EVN for role in electricity crisis
EVN is coming under growing criticism for contributing to the country’s worsening electricity shortfall and hurting its fragile economic outlook.
Controlling more than 70% of Vietnam’s electricity market, EVN has a key role in planning for the country’s long-term supply-demand balances for power and feedstock. It also purchases electricity from smaller producers including foreign and private companies who account for just over 10% of the national electricity supply.
The rest is generated by the country’s main industrial groups like PetroVietnam, Vinacomin and the Vietnam Industry Construction Group.
EVN has been accused of abusing its monopoly role in the purchase and sale of electricity as it offers prices so unattractive that counter-parties are unwilling or unable to conclude supply-demand deals.
Vinacomin, the country’s leading coal miner, said it has made little progress in developing independent power projects over the last decade as it is unable to secure the minimum electricity tariffs from EVN that would provide it a reasonable rate of returns.
Vinacomin and others complain that EVN is not interested in making win-win deals, often leaving independent power producers to deal with the consequences of volatile prices and unstable supply of oil and coal feedstock.
They said EVN wants to lay off the bulk of market risks to counterparts to ensure that it always shows a profit.
Companies buying electricity said EVN has proved to be an unreliable supplier, forcing them to turn to other power producers at higher cost. Despite signing long-term contracts at certain prices, customers said they have little recourse when EVN fails to deliver.
As a result, businesses suffer and are afraid to expand their operations, ultimately hurting the economy and Vietnam’s attractiveness as an investment destination.
EVN said it is doing its best to develop the country’s power infrastructure to meet a projected annual 15% rise in Vietnam’s electricity demand over the next few years.
The company said the lack of government support and funds has handicapped its ability to meet the country’s growing power demand over the last few years. It has warned that Vietnam’s electricity demand-supply gap will widen as EVN may not be able to raise the US$15 billion needed to expand power infrastructure through 2015.
Vietnam’s electricity consumption is expected to nearly double to 175 gigawatt-hours (GWH) in 2015 from 98 GWH this year, while supply will increase to 196 GWH from 110 GWH over the same period.
By 2015, coal will become the leading feedstock, overtaking hydropower which now supplies around 37% of the country’s power supply. Natural gas is now the second leading feedstock (31.7%) followed by coal (18.3%), oil (5.4%) and renewable sources (2.3%).
Of the nearly 27,000MW new capacity to come onstream through 2015, coal will be the fuel of choice for 14,370 MW, followed by hydropower (7,600MW0 and natural gas (2,970 MW).
While EVN is projecting coal to become the leading fuel, Vinacomin has warned that the country’s declining coal output will crimp its domestic power supply. Foreign and local business groups have warned that Vietnam’s economy will suffer if the government continues to drag its feet in dealing with the country’s worsening power crisis.
Vinacomin signs first term agreement to import coal
Vietnam has signed its first major contract to import coal, underlining the speed of its decline from net exporter.
Japanese trading house Marubeni Corp said it has agreed to supply between one and two million metric tons of coal a year to state trader Vinacomin.
Marubeni will source the coal from Australia or Indonesia. The details of the agreement including the type of coal, financial terms and delivery dates are still being worked out.
With the depletion of its domestic reserves, Vietnam has begun reducing exports and imported its first cargo of thermal coal in June.
Vinacomin is under pressure to supply coal to the country’s power plants which are straining to meet demand from the country’s fast-growing economy. The state-owned coal miner and trader said it plans to import 10 million tons in 2012 to make up for the domestic supply shortfall.