Ensuring energy security vital during coal upheaval

January 13, 2022 | 14:00
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As Indonesia unexpectedly decided to ban coal exports for the month, Vietnam’s power generators fear fuel shortages. VIR’s Van Nguyen spoke with Assoc. Prof. Dr. Nguyen Canh Nam from the Vietnam Energy Association about the ban and how it will affect the nation’s power supply.

How will the ban affect Vietnam’s coal supply?

Ensuring energy security vital during coal upheaval
Assoc. Prof. Dr. Nguyen Canh Nam from the Vietnam Energy Association

Vietnam may be short of coal in the first quarter of 2022 if the Indonesian government maintains an export ban on the country’s coal businesses. Meanwhile, our coal reserves of about 10 million tonnes can only meet a very small demand in industrial and electricity production.

Our country’s coal reserves have been dependent on imports. Inventories increase when coal prices are low and imports are favourable. But when coal prices increase, importers focused on domestic coal sources, pulling inventories down to low levels. In some years, the inventory at the beginning of the year increased sharply and decreased again at the end of the year.

Vietnam’s scale and per capita coal consumption are still low compared to the region and many countries in the world, but consumption is increasing steadily. Coal now accounts for 50.6 per cent of the national power demand, far exceeding hydroelectricity with 29.4 per cent and gas with 15.0 per cent.

In 2020, Vietnam’s coal consumption increased by 1.4 per cent and the 10 years before saw an average increase of 16.0 per cent a year. By the end of 2020, Vietnam had an average coal consumption of 21.35 gigajoule per person, slightly higher than the world’s average of 19.33 gigajoules, but at a very low level compared to China at over 57GJ.

Is the supply from Indonesia now completely interrupted?

It is not completely interrupted yet. Generally, variations in coal supply depend on the situation and specific conditions of each country or region. Indonesia has rich coal resources and used to impose a resource tax of 13 per cent on exports. But in recent years, its government advocated restricting coal exports. To take advantage of domestic coal resources, Indonesia also reduced the royalty to 3 per cent, on the one hand supporting businesses to prioritise coal for the domestic market without loss of production, but on the other hand, helping to make full use of coal resources.

Vietnam can still import coal from Indonesia, Australia, and South Africa in the short term, but the coal growth rate of these countries is slowing down as it has reached a peak. The future supply of coal to the market is in a downward direction. Supply from Indonesia is difficult, while coal from South Africa is gradually constrained by the decreasing mining output due to limited reserves. Meanwhile, supply is strongly shared by China, where the coal demand is huge. Supply from South Africa has also passed its peak, with export output lowered from 2.5 to 2 exajoule per year around 2019.

How can Vietnamese power producers handle the current dependence on imports?

For Vietnam, ensuring energy security is most important. Of course, this means to increase the exploitation of available energy resources in the country, including coal, to further improve its autonomy in energy security and reduce its dependence on natural resources. Also, imported energy is risky and volatile.

However, since there is currently no other way, policymakers need to pay attention to three main issues.

Firstly, the domestic coal supply is limited after more than 130 years of exploitation. Thus, the cost of coal mining operations in our country has increased dramatically.

Next, coal mining in Vietnam mainly serves domestic demand, especially for power generation. Meanwhile, coal exports are almost negligible, with only a few million tonnes shipped per year.

Lastly, our country’s current tax and fee policy for coal mining are unfavourable, especially the royalty in combination with fees for mining rights. Currently, such a royalty amounts to 10-12 per cent of revenues, plus 2 per cent mining licence fees. These fees are among the highest in global comparison.

To sustainably develop the coal industry and reduce dependence on imports, the state should soon consider reducing the royalty to a reasonable level and spend money granting mining rights following the Law on Minerals. This regulation has been issued for more than 10 years and needs to be adjusted and amended to suit the new situation.

In the immediate future, the government can propose the National Assembly consider reducing the royalty rate to 4-6 per cent. Further, when amending the Law on Minerals, the government should also ask the legislature to remove fees for mining rights, because the nature of this revenue coincides with the nature of the royalty’s tax.

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