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The Vietnam News

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[Year 2001]

Power-thirsty Vietnam needs change to lure investment

HONG KONG - Electricity-hungry Vietnam must introduce transparent tariffs and guarantee that electricity producers are paid if it wants to attract crucial foreign investment to the sector, a top industry official said. "The government should issue a... tariff rate on the sale price of commercial electricity applicable to the whole country," Pilun Pocharnart, president of Vietnamese electricity producer Amata Power (Bien Hoa) Ltd, told a power industry seminar in Hong Kong on Monday.

Pocharnart also called for the government to appoint a Vietnamese financial institution to guarantee the financial obligations of power purchasers to ensure that electricity producers receive payment. "The power purchase price of a BOT (build-operate-transfer) project must be attractive and balanced between benefit for the private power producer and the government," he said. Foreign capital is key to Vietnam's power industry, which will require about US$1 billion per annum from now until 2005. The figure will increase to US$1.5 billion annually for the rest of the decade, Pocharnart said.

Power demand in Vietnam is expected to grow at between 11-13 percent annually throughout the decade. Many foreign companies are interested in investing in Vietnam's power projects under BOT terms, but many projects have failed to break ground despite long negotiations, he said. Commonly faced problems include foreign currency availability, security of loans, tariff level, resolution of disputes, an incomplete regulatory framework as well as excessive bureaucracy, Pocharnart said. For example, Oxbow International Power Group has withdrawn from a US$300 million coal-fired thermal power plant reportedly because the government is unwilling to set the electricity tariff at a rate that will allow the project sponsors to receive a reasonable rate of return, he said.

The fate of the long-awaited Wartsila project designed with installed capcity of 120 MWs remains undecided as the foreign investor, Finland's Wartsila NSD Power Development and state-run Electricity of Vietnam (EVN) have yet to reach agreement on power pricing and availablity of foreign exchange, he said. Another two proposed BOT power projects in the Mekong Delta province of Soc Trang which involves Enron International of the United States has actually stopped dead as the location of the project can not be be confirmed, Pocharnart said.

But the Vietnamese government has recently accepted a number of suggestions from the private sector and international organisations for further amendment or supplements to improve relevant laws, he said. As a result, two major BOT power projects with total installed capacity of 1,400 MWs proceeded recently, following three years of intensive negotiations on power and gas pricing, government guarantees in terms of gas supply, foreign exchange conversion, land rental and tax incentives.

"While there are still issues arising during BOT contract negotiations, many assume that if Vietnam accelerates reform of its economic policies and legal framework mechanism, interest in Vietnam will return," he said. At present, the total installed capacity of Vietnam's power plants is 6,772 MWs.

By Charlie Zhu - Reuters - November 27, 2001.