Torbjorn E. Kirkeby-Garstad, vice president of Asia and Vietnam country manager of global hydropower producer SN Power talked with VIR’s Phuong Thu about the firm’s ambitions and challenges when entering Vietnam’s power market.
Since 2011 your firm has attempted to acquire hydropower plants of at least 50 megawatts in Vietnam and worked with the state-run Electricity of Vietnam (EVN) and other state-owned enterprises (SOEs). However, as of yet no deals have been signed so far. Why is that?
One of the key reasons why SN Power has failed to make an investment so far has been the difficulties related to 50 per cent ownership caps. The law allows for it and we have been able to agree valuations and key terms with the relevant SOEs, but the ministries have been very reluctant to divest below 51 per cent in SOEs that control these assets. It would be highly appreciated if the government of Vietnam would allow SN Power a minimum of 50 per cent ownership in hydroelectric power plants of less than 500MW of capacity in Vietnam. SN Power has also identified a significant number of investment prospects. A SN Power investment would secure sustainable financing of these assets in a challenging period. SN Power will be able to provide corporate governance, energy management in a commercial environment and state-of-the art operations and maintenance. And the SOEs will, in particular, provide important background knowledge, local business understanding and networks.
What are SN Power’s ambitions for the Vietnamese market?
SN Power aims to become an industrial investor in Vietnam within the next eight to 12 months and plans on becoming a significant investor in the power sector in the medium to long term. A representative office was established in Hanoi in March 2010, and joint development agreement with IFC InfraVentures was signed in June 2010.
Vietnam has worked to create a sustainable power sector able to meet the rapidly growing power demand. Power capacity needs to triple over the coming eight years and the Vietnamese government has decided to restructure the power sector in order to achieve this. A roadmap towards a deregulated power market, with the Competitive Generation Market (CGM) launched on July 1, 2012 and a spin-off from EVN of three generation companies are important steps toward a sustainable power sector.
SN Power, with the support of the Norwegian Embassy and NORAD, have shared experience and supported EVN and the whole Vietnamese electricity cluster directly with key industrial knowledge over the last 18 months. The aim has been to enable a better understanding of how well-functioning deregulated electricity markets work and how to develop such a deregulated market in Vietnam. Finally, SN Power has assisted in strengthening the understanding of the high value of corporate governance based on international best practice aligned to a Vietnamese context.
What are the challenges for SN Power to enter Vietnam’s power market?
A stable, neutral and transparent market regime will build confidence in Vietnam for domestic and foreign investors. The successful implementation of the government’s planned three-stage roadmap for market development is a critical factor in order to make SN Power’s, other foreign and domestic private investments in the power industry in Vietnam economically viable without the need of government guarantees.
A transparent environment up to the point, where the wholesale market is implemented in 2017, of the key terms and conditions (firm levels of electricity trading volumes and tariffs) would be of great importance to trigger short-term investments and would provide important signals to enable medium to long term investments in new capacity.
Secondly, market based valuations of generation companies would enable transactions to be implemented successfully. Allowing SOEs to accept valuations based on market conditions and environment would trigger both needed restructuring of non-core business by SOEs and enable domestic and foreign investment in a financially sustainable manner. In some cases this would entail the SOE selling at a lower valuation than their historical book value.
SN Power ready for energy investment in Vietnam Related image(s)
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