Mar 16, 2012

Vietnam - Vietnam power needs unresolved by sacking

When Dao Van Hung was sacked last month after five years as chairman of Electricity of Vietnam (EVN), many interpreted his removal as evidence that Prime Minister Nguyen Tan Dung is finally set to shake up the country's state-controlled energy sector.

Rolling power cuts are a regular feature of daily life in Vietnam and serve as a major deterrent to manufacturing-oriented foreign investment.

Hung was officially fired for "mismanagement" connected to heavy losses suffered in an ill-fated venture to build a wireless phone system along the backbone of the nation's electricity network. But as with many of Vietnam's lumbering state enterprises, EGN suffers from the state's inability to decide what the giant public firm's role should be in the country's fast-growing transitional market economy.

Power prices are still set by the state in Vietnam's hybrid market-driven and centrally planned economy. In 2010, Vietnamese consumers paid about a third as much per kilowatt hour of electricity as consumers in nearby Thailand and Malaysia. Those low tariffs have generally been good for social stability, at least until outages became chronic. But state control over the energy sector has deterred would-be investors in badly needed power development.

The consequence of Hanoi's centrally administered power pricing has been a widening mismatch between rapidly growing demand and lagging supply. The 6th national plan, adopted in 2007, projected that supply would increase by 17% annually to sustain gross domestic product (GDP) growth of 8.5% to 9% through 2015. According to the plan, 95 new plants are needed but EVN has proved unable or unwilling to bring them on line in a timely manner.

Because EVN has been required to sell power for approximately five US cents per kilowatt-hour, the state firm has dragged its feet on sourcing supply from gas or coal-fired plants - neither from its own nor from the few private-sector-developed plants now in operation.

Until about 2006, EVN was able to rely on cheaper hydroelectricity, but to the chagrin of EVN's Soviet-trained managers potential sites for new big dams are now largely exhausted. Chinese power companies can generally build coal-fired power plants in 18 months, according to the online paper VietNamNet, while EVN's average time from site acquisition to commissioning is five years.

With a Communist Party congress safely behind them, the government and party leaders finally agreed in March 2011 to raise power prices by 15%. The government said the move was the beginning of an effort to raise electricity prices up to a level matching the current and future cost of power generation. Prices were raised another 5% in December last year.

Now, as Hanoi battles with double-digit inflation, there is speculation the government will raise electricity rates by another 10%, though there has been no official confirmation of the anticipated move.

Two years ago, the government told EVN to guarantee private power developers that they would earn a fair return on investments made in new power plants. A dozen of these "merchant plants" are now under construction and all will be coal-fired. Many more are reportedly in the planning stage. As they gradually come on line, the power they produce will ease supply shortages but EVN will have to pay a substantially higher price for each additional kilowatt-hour.

EVN officials have voiced qualified optimism that Vietnam will squeak through this year's dry season without significant power cuts. Though persistent drought has reduced power supply from hydropower plants, a recession in the construction industry has cut energy-guzzling production of cement and steel by some 14% year on year. They have also forecast that a first-ever electricity conservation campaign will shrink overall power demand by at least 1%.

There are still questions, however, about the regime's determination to reform EVN and Vinacomin, the state-owned coal and minerals giant. Government officials insist that both must abide by market discipline, implying that they should shrink payrolls by releasing redundant workers and cap salaries that are currently about twice the national average.

In recent years, Vinacomin has preferred to sell at market rates its high grade coal to Chinese and Japanese steel companies rather than deliver it to EVN at the lower prices set by the state. That should change now that EVN is in principle supposed to pay Vinacomin or foreign suppliers market prices for coal, and in turn will be permitted to pass through its higher costs to consumers through dearer electricity rates.

Nuclear designs

Putting Vietnam's electricity sector on an economically rational basis, however, will take political courage. Though the regime brooks no criticism of central leadership failures, Vietnam's public is still acutely aware that energy policies have been poorly conceived and executed for at least a decade.

The popular desire for change explains why not even the tsunami-triggered meltdown of reactors at Japan's Fukushima Dai-ichi nuclear power plant has shaken Vietnam's resolve to build its own nuclear power industry.

While the Fukushima disaster has prompted anti-nuclear activism around the world, especially in East Asia, within Vietnam only a few scientists are known to have voiced doubts about the regime's plan to build 10 nuclear power plants by 2030. Local reporters and editors have reportedly been warned off against questioning the government's nuclear plans.

Ground will be broken in 2014 in Ninh Thuan, an impoverished province on Vietnam's south central coast, for the first pair of reactors. These will be built by a consortium led by the Russian state nuclear power corporation Rosatom. A consortium of Japanese firms will lead construction of the second planned pair.

Current nuclear reactor designs are far less accident-prone than the "second generation" Fukushima design; in particular, they are designed to shut down - and stay shut down - without reliance on batteries or an external power supply. Presumably the designs selected by Vietnam's planners will have such state-of-the-art passive safety features.

Foreign critics of Vietnam's nuclear plans, some of whom have suggested instead that its growing power needs would be better met by intensive development of green technologies, are mainly off-base.

Solar power, wind power and power generated by harnessing temperature differentials in sea water are still a decade or more away from making a significant contribution to Vietnam's national energy mix. The one green exception is solar hot water: family-sized tube-type batch heaters, a simple technology that is highly cost effective and well-suited to climates where water never freezes, are sprouting in large numbers on house roofs in Vietnam's cities.

More cogent criticisms of Vietnam's nuclear designs focus on the country's underdeveloped safety culture, its often poor construction quality and inattention to maintenance, and the lack of accountability inherent in a system where the state would be both operator and regulator of the nuclear power sector.

However true these objections may be, all of them sound patronizing to Vietnamese ears and will likely only stiffen the regime's resolve to carry through with its nuclear plan.

Investment in energy-saving technologies coupled with appropriate economic incentives - for example, subsidies for the introduction of technologies funded by a surcharge on electricity use - could make a substantial dent in Vietnam's future energy demand. A senior industry ministry official recently estimated that the heavy industry, transport and construction sectors could all improve their energy efficiency by 20% to 30%.

Barring discoveries of huge pools of gas in the South China Sea (and multinational agreement on how to share them), increments to Vietnam's base load power supply in the next few decades must come either from coal-fired or nuclear power plants.

Each bears its own set of problems: the coal-fired plants will add to the atmosphere's carbon load, while the specter of a possible meltdown accident will hang over the nuclear option. It's a Hobson's choice.

David Brown
Asia Times

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