Private capital key to Vietnam’s energy development: WB report

Illustrative photo (Source: VNA)

Titled “Maximising Finance for Development in Vietnam’s energy sector”, the report said the changing macroeconomic and sectoral context in Vietnam requires a new approach to financing electricity and gas investments. It presented an action plan on how to unlock new sources of finance, especially from the private sector, based on a comprehensive analysis of investment needs as well as constraints in the regulatory environment including the capital and forex markets.

Between now and 2030, Vietnam’s electricity sector requires new investments of about 10 billion USD annually, higher than the average of 8 billion USD for the 2011–15 period. Meanwhile, the development of the gas sector is estimated to require about 20 billion USD between 2015 and 2035.

While Vietnam Electricity (EVN) and PetroVietnam (PVN) will continue to play an important role in developing new infrastructure, the vast majority of new gas and electricity investments will need to come from private players. Moving into this direction is in line with the Government’s strategy and objectives of financing the energy sector in the future, said the report.

Given the limited fiscal space and the reduction of concessional financing available going forward, it will be important for Vietnam to step up mobilising alternative capital resources for the electricity and gas sectors, said Ousmane Dione, the World Bank Country Director for Vietnam.

He recommended that the Government should address comprehensively the constraints currently impeding the flows of domestic and cross border private capital into two of the most strategic segments of the Vietnamese economy.

Granz Gerner, the World Bank’s Lead Energy Economist and the study’s lead author, said private investors are interested in Vietnam’s growing energy sector, particularly the development of renewable energy and liquefied natural gas.

What investors need is a transparent and stable regulatory environment which incorporates a proper risk-sharing mechanism among all parties, he added.

To remove constraints and maximise financing available for electricity and gas investments in Vietnam, the report proposed a well-coordinated policy effort around three pillars: developing a major PPP/IPP programme for new power generation, enhancing the financial standing and credit worthiness of EVN and PVN to enable them to access commercial finance without government support, and increasing the availability of local currency financing which is critical for both project finance and corporate project finance.