International financing key to develop Vietnam's power sector: Officials
Vietnam needs 150 billion USD to invest in power projects in the next 10 years, equal to half the country’s current gross domestic product (GDP), which raises demand for international financing.
A solar power project (Source: VNA)
Dang Huy Dong, head of the Institute for Planning and Development, provided this estimate and emphasised that given the current size of the domestic capital market, for at least the next five years, the economy cannot meet the capital requirements for the development of the power sector.
Dong made this statement at the seminar on International Financing for Independent Power Projects on November 25 in Hanoi.
Since 2015, Vietnam has transitioned to a low-middle-income country which reduces its access to concessional sources of finance from development partners such as Official Development Assistance (ODA).
“Therefore, capital can only be mobilised from international financial institutions,” he said.
The international capital market is very large with tens of thousands of billions of US dollars, more than enough to satisfy Vietnam’s capital need. However, Dong said such capital flows are highly competitive, running on supply-demand principles and certain standards, which requires borrowers to comply.
In February this year, the Politburo issued Resolution No. 55-NQ/TQ on Vietnam’s strategic orientations for energy development through 2030 and with an outlook to 2045.
To meet the target of a total capacity of all power sources reaching 125-130GW and total power output of 550-600 billion kWh by 2030, the resolution has laid out the task of researching and completing the funding mechanism for the power sector.
Nguyen Duc Hien, vice chairman of the Central Economic Commission, said attracting private and foreign direct investment in the power industry as well as in independent power projects includes many difficulties, while funding from the State budget and ODA sources is limited.
He said loans from domestic credit institutions are restrained because energy projects require large capital sources but the central bank’s requirements on credit policy hamper lending to this sector. In addition, foreign direct investment (FDI) in the power sector also has some problems in the field of foreign exchange management such as foreign currency conversion, money transfer and exchange rate risk.
With a total investment of nearly 13-15 billion USD per year, the size of the Vietnamese market is attractive enough for investors, Hien said but noted Vietnam needs to attach importance to the role of the national credit rating as it will help the Government, financial institutions and businesses reduce the cost of raising capital in international markets.
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