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The seminar

Capital from international financial institutions is needed

At the seminar on International Financing for Independent Power Projects held by the Central Economic Committee on November 24, Mr. Nguyen Duc Hien, Deputy Head of the Central Economic Committee, said that by August 2020, the independent power source project (IPP) was invested and operated with a capacity of about 16,400 MW (accounting for 28.3% of the installed capacity of the whole system).

In order to ensure the implementation of the target that the total capacity of power sources by 2030 will reach about 125-130 GW and power output will reach about 550-600 billion kWh,the power sector needs very large investment.

According to the Ministry of Industry and Trade, in the 2021 – 2030 period, the investment capital demand for the power sector is US$133.3 billion, of which the structure between the power source and the power grid is 72/28; the 2031 - 2045 period is US$184.1 billion and the corresponding structure is 74/26.

According to Mr. Dang Huy Dong, Director of the Institute of Planning and Development Studies, according to his calculations, with the current size of the domestic capital market and for at least the next five years, the endogenous capital flow of the economy cannot satisfy the capital requirements for power sector development.

Since 2015, Vietnam has become a low-middle-income country and the door to access ODA is closing. So, the only remaining capital is from international financial institutions. The international capital market is very large, with tens of thousands of billions of dollars, enough to satisfy the capital needs of Vietnam.

“Like other commodities, international capital flows are highly competitive in accordance with the law of supply and demand and are operated according to certain standards, requiring all market participants to comply, there are no exceptions and are traded at different prices. The cost of capital is mainly determined by the risk of the investment, high risk, high costs and high profit expectations, and vice versa,”Mr. Dong said.

Mr. Nguyen DucHien, Deputy Head of the Central Economic Commission, said that attracting private investment in the power sector in general and in independent power source projects (IPP) is currently facing many difficulties.

In that context, finding and accessing capital sources from international financial and credit institutions to invest in power generation projects, especially independent power generation projects is a necessary requirement.

Comply with international rules

However, to mobilize international funding for independent power projects, we must comply withinternational rules and requirements. At the same time, although the international capital flows are very large, they will only move to countries that meet three criteria: having a large enough market size; profitability at an attractive level; and low risk.

According to Mr. Hien, with a total investment of nearly US$13-15 billion per year, the scale of the Vietnamese market is attractive enough. In order to increase profitability and reduce risks to attract international capital flows, Vietnam needs to pay attention to the role of national credit ratings because it will help the Government, financial institutions and businesses in mobilizing loans or issuing bonds to international capital markets, so the cost of raising capital can be reduced.

Another very important task is to develop the capital market and avoid relying too much on credit from the commercial banking system.

“In order to comply with international rules, it is necessary to standardize and transparently follow international practices on power purchase agreements (PPA) because this is the most important factor determining the cost of capital, in which it is important to note that there is a mechanism to share and allocate risks reasonably, to avoid only pushing risks for investors," Mr. Hiensaid.

For investment in power source development, revenue assurance is often stated in the PPA, which is an important project finance factor for independent power projects.

The next problem is that the electricity price mechanism also needs to attract enough investors, thereby ensuring the profitability needed to attract international capital flows.