Vietnam is far from privatizing its state owned power company EVN, but is adopting an aggressive strategy to tap its healthy reserves of hydropower and gas, while attracting foreign investment.
Vietnam is one of Asia’s gems in terms of self sufficiency in the power sector. It has an unrivalled hydropower potential backed by recently developed natural gas reserves that have attracted an array of foreign interest eager to tap these lucrative resources.
The total installed capacity of power stations in Vietnam is over 8750 MW, of which hydropower accounts for 53 per cent, thermal power 22 per cent, and diesel and gas turbine 25 per cent. The total output of power stations is over 23.7 billion kWh, of which hydropower accounts for 58.7 per cent, thermal power 22.7 per cent, and diesel and gas turbine 18.6 per cent. Hydropower is expected to account for 70 per cent of the nation’s electricity generation by by 2010. This equates to 30 TWh per year.
In January 2003, Vietnam’s state owned power company, EVN, announced plans to spend $1.13 billion on the construction of eight power plants. The total capacity of the plants will be 1800 MW, with 500 kV transmission lines. The plants to be built include a 70 MW hydropower plant in Quang Tri, a 600 MW thermal power plant in O Mon, a 600 MW thermal plant in Hai Phong, a 110 MW hydropower plant in Plei Krong, a 280 MW hydropower plant in Buon Kuop-Chupong Kong, a 170 MW hydropower plant in A Vuong, a 150 MW steam turbine plant in Phu My, and a 300 MW hydropower plant in Dai Ninh.
Hydroelectricity is Vietnam’s major energy source, supplying over half the country’s demand
Presently, the potential for hydropower development in Vietnam is still great. Around 2200 rivers, each of which is more than 10 km length, together give a potential capacity of 18 000 MW, of which only 4600 MW has been installed.
The Song Da Building Corp. has plans to invest in six small to medium-sized hydropower projects to boost Vietnam’s national grid capacity by another 400 MW under build-operate-transfer arrangements. The projects are:
- the 130 MW Nam Chieu plant in the northern province of Son La
- the 100 MW Sesan Poko power plant in Central Highlands Gia Lai province
- the 34 MW Eakrong Ren power plant in the central province of Khanh Hoa
- the 52 MW Bac Binh in the northern province of Ha Giang
- the 5.5 MW Dam San power plant in Binh Thuan province
- the 8 MW Nam Mu in the northern province of Ha Giang.
The one major project that is now occupying the Vietnamese schedule and should be ready within 13 years, is the 3600 MW Son La hydropower project to be constructed on the Da River about 320 km west of Hanoi.
The proposed Son La Dam would be the largest dam in Vietnam. At a cost of some $5.1 billion, proponents of the project have argued that it will help improve Vietnam’s electricity fuel mix, reduce flood damage and improve irrigation in the Red River Delta. Son La’s reservoir will hold a total of 25 billion m3 of water. Together with the Hoa Binh hydropower plant reservoir, the water volume will total 36 billion m3. The Son La hydropower station project will be the largest of its kind in south east Asia, and will be located in the Da River upstream, near the northern provinces of Son La and Lai Chau.
The gas-fired Phy My complex will have a power output of 3600 MW
In addition to a large hydropower potential, the country has an abundant natural gas supply. Vietnam has already taken a big step towards gas sector development with the first gas flow being brought ashore from the Nam Con Son gas project. This is the biggest foreign-invested project in Vietnam, with a total investment capital of $1.3 billion. The increase in the availability of natural gas is driving projects like the Phu My power generation complex, which will diversify the country’s fuel mix in power generation.
In 1992, the Lan Tay gas field was discovered offshore off the Ba Ria-Vung Tau southern province and one year later, another oil field – Lan Do was identified. It is estimated that these two fields have reserves of 58 billion m3 and are expected to yield gas for the next 20 years. Expected annual gas output will be 3 billion m3.
A gas pipeline is under construction through a joint venture concerning BP, Conoco and India’s ONGC together with Vietnam’s state-owned petroleum company, PetroVietnam. It is estimated to cost $565 million.
The development of Vietnam’s natural gas sector will enable the country to diversify its primary energy mix and thus enhance its security of supply and put economic growth on a stable footing. Presently, the power sector will be the main consumer of this natural gas, bringing the additional benefit of reducing hydropower risk, i.e. the risk of generating capacity falling during years of low rainfall. A key project in this respect is the Phu My power generation plant.
The Phu My power plant consists of a number of seperate units (see Table 2). Liquefied gas will be used to run the Phu My gas centre, a complex that will supply a total of 3600 MW of power when complete, covering 40 per cent of national power generation. The total length of the sub-sea pipeline bringing gas to the complex is almost 400 km, with two separate lines pumping natural gas and condensed gas ashore.
The Phu My 3 power plant has a capacity of 720 MW and is wholly owned by BP. The plant consists of two gas turbines and a 250 MW steam turbine. The Phu My 4 plant consists of two 145 MW gas turbines and a 150 MW steam turbine.
New laws drafted in May 2000 have made Vietnam a much easier country to do business in, thus attracting a lot of foreign investment, especially to the power sector. Further, the new laws give greater preference to foreign investors through a number of measures including import tariff exemption and reduction, reduced profit transmittal tax rates, and allowing 100 per cent foreign-owned enterprises and foreign partners to the business corporation contract to forward losses. Furthermore, foreign investors will continue to enjoy preferences provided in case of changes in the Vietnamese laws. In the 2000-2005 period, with an estimated economic annual growth rate of seven per cent, Vietnam needs about $60 billion of investment, of which foreign direct investment is expected to account for 40 per cent.
Both Phu My 2.1 and 3 will be constructed under a build operate transfer scheme
As a result of the new laws, foreign companies across the globe are becoming increasingly involved in the Vietnamese power market. EVN and a consortium including Tokyo Electric Power (Tepco), Sumitomo, and Electricité de France (EDF) are constructing the Phu My 2.2 in the Mekong Delta. The plant is planned to begin commercial operation in 2004. Also BP received approval for the Phu My 3 project in April 2001. Siemens will be undertaking the construction work for that facility.
EDF is also involved in funding a solar power project in Ho Chi Minh City where 50 per cent of residents have no access to electricity. A solar power cooperation programme installed a Vietnamese-French friendship solar station in Ho Chi Minh City, and is aiming to bring electricity to the southern provinces of Gia Lai, Quang Nam, and Binh Phuoc through similar projects.
The development of some of the above projects were initially held up by pricing disagreements. The foreign investors considered the prices offered by EVN to be below the levels which would give them a sufficient rate of return on capital. The Vietnamese government eventually stepped in to resolve the issue, and the price was set at ¢4.09/kWh.
Development of the transmission and distribution grid in Vietnam has failed to keep pace with the growing power generation sector due to limited investment, incomplete procedures and slow implementation. This has had a knock-on effect on the power grid, which has become overloaded in many regions, resulting in power loss and reduction of power quality and electricity blackouts.
In December 2002, the Dutch government approved a non-refundable aid package to help Vietnam optimize its electricity transmission system and reduce electricity losses to ten per cent. The funds will be used towards the purchase of equipment that can identify and overcome breakdowns in electricity transmission.
A north-south power cable transmits electricity from Vietnam’s largest generator, the Hoa Binh hydropower plant in the north, to large population centres in the south, linking the country into one electricity grid. The cable has helped to alleviate an electricity shortage in Ho Chi Minh City.
Plans are underway to build an underground electric cable, an above-ground cable, and a transformer station in Tao Dan (in the Ho Chi Minh City area). Construction began in mid-2000 and is to finish this year. The $56 million project is being funded by the World Bank.
The World Bank also is funding a $201 million project to extend distribution infrastructure into rural areas.The government currently is considering building more cables, including a 500 kV power line from Pleiku to Danang City. If built, the power line would be 300 km long and cost an estimated $130 million. EVN submitted a project feasibility study to the government in January 2003, which is under review.
The next stage, economically, for Vietnam, is to follow in China’s footsteps in joining the World Trade Organization. This should further enhance its perception by foreign investors, and help to drive its economic growth.
The government’s power sector policies have made many western countries and companies sit up and take notice of Vietnam. The growth of the energy sector has already encouraged and supported economic growth in the country, and further investment will help to maintain this trend.
Unlike other countries in the region, Vietnam is not planning power sector privatization. This certainty has helped to attract investment, while the development of natural gas reserves will help to maintain security of supply as the economy grows.