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Conditions in place for offshore development



Reducing the cost of capital for offshore wind power projects in Vietnam will be the main driver for lowering electricity costs and encouraging investment in such projects, 

argue several international energy experts, with the right government policies needed to be implemented quickly to follow through with the country’s energy development schedule.

1539 p13 conditions in place for offshore development

Conditions in place for offshore development, illustration photo

Refrigeration Electrical Engineering Corporation (REE) is planning to work with foreign investors to pilot an offshore wind power project with a total capacity of about 2,000-3,000MW, according to chairman Nguyen Thanh Mai at the company’s annual general shareholders’ meeting on March 30.

Electricity being in short supply and the future increase in selling price while coal and oil power sources pollute the environment were cited as the core factors by Mai to convince REE’s shareholders to invest in the company’s new project. She hopes to get a “good price when investment costs fall to about 10 US cents per kilowatt-hour and offshore wind prices will be at 11 US cents per kWh.”

Mai said that the current technology allows for offshore wind power projects with poles tens of metres high. An offshore wind speed of about 10m per second could then operate a 10-17MW turbine. However, the current situation of wind power development in Vietnam, as well as the risks that investors may face, was not discussed.

Capacity higher than target

The combination of strong winds, shallow water, and skilled workers is an ideal condition for Vietnam to develop offshore wind power. According to data from the Energy Conservation Research and Development Center (ENERTEAM) under the Department of Science and Technology of Ho Chi Minh City, 11 provinces have developed separate plans for wind power, including Thai Binh, Quang Tri, Ninh Thuan, Binh Thuan, and Dak Lak.

Tran Quang Cu, an expert of ENERTEAM, found that the total planned installed wind power capacity of these 11 provinces was “much higher than the national target”, about 2,600MW by 2020 compared to 800MW; and about 15,700MW by 2030 compared to 6,000MW for the whole country.

Cu realised that when funding wind power in this country, many investors encounter various problems related to the appraisal process, project approval time, and access to preferential credit capital from the state or official development assistance, while high investment rates would also lead to a long payback period.

Currently, 91 wind power projects with a total installed capacity of about 7,000MW have been added to the national wind power plan, and 250 projects, accounting for around 45,000MW, are waiting to be added to the plan.

Power purchase agreements (PPAs), according to Cu, are still a barrier to the development of wind power. As of June last year, about 31 projects have had PPAs with Electricity of Vietnam (EVN) with a total capacity of 1,662MW expected to be put into operation in the 2020-2021 period. If on time, by the end of 2021, the total installed capacity of wind power could amount to around 2,200MW, reaching 36 per cent of the planned target by 2025.

Under the current PPA, EVN is exempt from payment obligations, even when it is unable to receive electricity to the grid due to a transmission or distribution network failure of EVN. But Cu said that up to now, there is no “penalty mechanism in Vietnam if EVN does not receive electricity even if the state-owned company does not cooperate to implement it”.

Ideal conditions

Cooperative research from Vietnam, Ireland, and Japan has used statistical models to show that the annual average wind speed at 100m height can reach around 9-10m per second in many of Vietnam’s coastal areas.

The study also showed that energy density is equally large in some areas of the south-central coast and the Gulf of Tonkin and reaches capacities of over 50GWh per square kilometre per year. Only in the waters around Phu Quy or Bach Long Vi islands, the potential for the installed capacity could be around 38GW each, with the technical potential within a range of 185km from the shore on the territorial sea reaching 500-600GW or more.

According to the International Energy Agency, Vietnam could become one of the major offshore wind power centres in Southeast Asia. Data from the Ministry of Industry and Trade as of last September showed that the country had a total of 67 promising nearshore power projects, with a capacity of nearly 10GW and 14 offshore wind power projects with a capacity of nearly 30GW, which means that the total number of upcoming projects will be around 40GW.

The development of intertidal and nearshore wind power in Vietnam has been driven by government policies, including feed-in tariffs. However, at the moment, there is no official definition or specific policy for offshore wind power projects in Vietnam.

Up to now, no offshore wind farm has been established in Vietnam. The country is in the early stages of offshore development, and projects focus on coastal and intertidal or nearshore areas that are easier to invest in and come with shorter development periods. Developers are calling on the government to secure the industry, which will allow them to invest. The government can do this by setting offshore wind power goals as well as a dedicated offshore wind policy.

Given the existing conditions, Vietnam can benefit from a complete supply chain in Asia including wind power developing markets such as Taiwan, Japan, China, and South Korea – which is an important factor to reduce investment costs.

Dinh Van Nguyen, project head of Offshore Renewable Energy Development at Cork University’s SFI Research Centre for Energy, Climate, and Marine in Ireland, said that strong offshore winds are an important point to consider following Vietnam’s demand for electricity.

The country plans to upgrade 5-10GW of new offshore wind capacity by 2030 and 35-70GW by 2050. Nguyen believed this process needs to begin right away because it will take 5-10 years for design, planning, and construction.

To reduce capital costs, Nguyen said the government should encourage financial measures including “the participation of multilateral lenders and the adoption of green standards. The government should also consult international lenders and investors to determine suitable solutions.”

 The prime minister and the Ministry of Industry and Trade (MoIT) in 2019 agreed to allow Enterprize Energy group to study and survey the Thang Long offshore wind power project in the central province of Binh Thuan with a capacity of 3,400MW and the total investment capital of around $11.9 billion. However, so far this project is still in the appraisal process by the MoIT.

The investment in offshore wind power projects is in line with the development orientation of renewable energy sources of Binh Thuan People’s Committee. The Thang Long project will be financed to about 70-75 per cent by loans, with the remainder being the company’s equity.

However, realising a loan of more than $8 billion will not be easy as investment in renewable energy is still facing many difficulties. Investors need to consider costs that will increase due to many factors arising in the construction process.

The arrangement of loans mainly comes from foreign banks. In addition, financing arrangements for clean power projects in Vietnam are still facing problems with power purchase agreements. Although such contracts stipulate arbitration, investors and international banks will want to comply with international practices.




Is interbank rate climb worrisome?



Interest rates are the most important focus of attention this year as many believe after a year implementing the loose monetary policy, the authorities concerned are going to tighten them.

 Will the recent surge in interest rates on the interbank money market (Market 2) exert adverse effects on the market between banks and their corporate and individual clients (Market 1)?

Is interbank rate climb worrisome?
When it comes to capital inflows, banks have considerably built up their charter capital in recent years and set out plans for drastic capital hike this year. – SGT Photo: Tran Ngoc Linh

Interest rates on the Interbank market, the channel allowing banks to lend and borrow money among them, suddenly surged in late April. More precisely, the overnight rate climbed to 1.2% per annum, the highest during this past year. Such a level is also nearly three times higher than in the preceding week, 4.5 times higher than in the beginning of the month and 100 basis points higher than in early this year.

Similarly, the interest rates for the one-week, two-week and one-month terms picked up 100-120 basis points against the beginning of the year, and 2.5-3.5 times greater than in early April. The hike worries quite a few people as they fear the liquidity pressure in the banking system is returning and the interest rate rise may send its ripple effect to Market 1, which means that banks may start to revise up their deposit rates again.

According to analysts, interest rates are the most important focus of attention this year, as many believe after a year implementing the loose monetary policy, the authorities concerned are going to tighten it. Recent reports by several institutions also forecast interest rates may start to rise again in the second half of this year, as a number of countries are showing signs of beginning their tightening monetary policy.

As per statistics of the General Statistics Office, credit growth in the banking industry as of March 19 was 1.47%, 2.7 times higher than the rate of only 0.54% in capital mobilization. The most up-to-date credit growth figure was 3.34% in mid-April, which might mean the demand for loans has further risen and the growth in deposits until now has probably failed to keep pace with the credit growth rate.

If this trend continues, it is inevitable that the system’s liquidity will further decline. If this is the case, one cannot rule out the possibility of banks competing for deposits once again. However, there are still factors that help stabilize interest rates, while the recent rise of interbank interest rates is probably just temporary.

Prior to any long holiday, interest rates on Market 1 often grow rapidly as banks are in need of capital to meet their liquidity safety and short-term solvency ratios. They will later slide back.

For example, in the latest surge, although the lending rates in Market 2 increased sharply for the shorter terms, there was hardly any change in the rates for the three-month, six-month and nine-month terms compared to the beginning of the month. Moreover, they even significantly went down against the beginning of the year. Therefore, if this demand for liquidity is only temporary, it will probably not exert any pressure onto the bank-to-customer market. 

Interest rates supporters

Meanwhile, at present and in the immediate future, there are factors that help interest rates remain stable as mentioned above. The first is inflation is still at a low level, evidenced by the fact that the consumer price index (CPI) in April recorded the second consecutive month of reduction compared to the preceding month, with a slight decrease of 0.04%. So far, the CPI has only picked up 1.27% against the beginning of the year and 2.7% year-on-year, far from the target of 4% for the whole year.

Notably, from the third quarter onward, a handsome sum of the dong will possibly be pumped out from the six-month foreign currency sales contracts that commercial banks signed with the State Bank of Vietnam (SBV) early this year. That amount of money may help stabilize the liquidity of the dong in the system. In recent years, the volume of the dong pumped out via the foreign currency buying activities carried out by the SBV has played a key role in supporting the liquidity of the system.

Faced with accusations of currency manipulation by the U.S. Department of the Treasury in late 2020, the SBV has switched to buying foreign currencies in a six-month term early this year, but basically this policy may be supportive to the liquidity of the system. In addition, the United States has lately removed Vietnam from her list of currency manipulators. This indicates the intervention in the market for foreign exchange spot transactions may no longer have to bear great pressure. In other words, the central bank may resume the policy on buying foreign currencies via both spot and forward contracts.

Another supporting factor is considering the fact that prices in the real estate market are on the constant rise in an unhealthy way in some localities, which means probably a certain volume of bank loans has been spent on swing trading in this investment channel, the agencies in charge will tighten their grip to cool down the steep housing prices. The SBV, meanwhile, will probably formulate other policies in a bid to limit the volume of credit poured into risky industries, such as real estate or securities, thereby curbing credit growth in the process.

When it comes to capital inflows, banks have considerably built up their charter capital in recent years and set out plans for drastic capital hike this year. Also, they have successfully issued long-term bonds and valuable papers, which helps reduce the dependence on deposits from individual customers, who often come only when offered high interest rates.

As per deposit rates, in April, whereas several banks lifted their deposit rates (up 0.6 percentage point for terms of six months or longer at GPBank, up 0.2 percentage point also for terms of six-month or more at VPBank, and up 0.2 percentage point for terms of 1-3 months at PGBank), some others further lowered such rates: down 0.1 percentage point for terms of six months or longer at Kienlongbank, down 0.2-0.3 percentage point for terms of 6-11 months at VIB, down 0.2 percentage point for 3-5 month terms and 0.1 percentage point for terms of 12 months or more at Techcombank, down 0.2-0.4 percentage point for all terms at MBBank, etc.



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Enterprises and the healthcare front




A medical worker prepares AstraZeneca’s Covid-19 vaccine for injection – PHOTO: VNA

For enterprises, protecting the people’s health does not look like their mandate, but hundreds of local businesses have rolled up their sleeves for the common cause in the midst of the raging Covid-19 pandemic. Aware of their corporate social responsibility, enterprises across the country have opened their coffers, pouring out hundreds of billions of Vietnamese dong to finance the national vaccination drive.

Just three weeks ago, the Vietnam Fatherland Front Committee of HCMC organized a function to receive donations from enterprises for the city’s program to buy vaccines for fighting the Covid-19 pandemic, and the enthusiasm from enterprises amazed many attendees.

“As of April 23 this year, the city had received more than VND200 billion from 31 organizations and individuals,” said To Thi Bich Chau, head of the Vietnam Fatherland Front Committee of HCMC, at the function. That is not to mention donations in kind worth nearly VND70 billion contributed to the city’s vaccination drive.

Wholehearted donations

At the event, Hung Thinh Corporation donated a huge sum of VND50 billion to buy vaccines. Nguyen Nam Hien, deputy general director of Hung Thinh Corporation, noted that the corporation has responded to the call from the Vietnam Fatherland Front Committee of HCMC, contributing VND50 billion for HCMC and other localities to buy vaccines. “Apart from this donation, we will continue to support other activities of HCMC and the country to fight the Covid-19 pandemic,” he promised.

In fact, this huge donation is just a part of the corporation’s CSR program to support the community in tough times. When the pandemic surfaced last year, Hung Thinh already donated nearly VND50 billion in cash and in kind, including Covid-19 diagnosis machines, portable X-ray machines, protective gears for medical personnel, and other essential items for frontline workers.

Numerous other enterprises in the country have since early this year also given big bugs for the vaccination program.

On February 25, An Phat Holdings handed over VND20 billion to help the northern province of Hai Duong acquire vaccines for the local people who were then struggling with the third wave of Covid-19 outbreaks. Pham Van Tuan, a senior executive of An Phat Holdings, remarked that the company wished to join forces with the provincial government and other entities to quickly contain outbreaks. Earlier that same month, An Phat Holdings had already donated VND10 billion plus medical supplies worth VND3.5 billion to the provincial government to help with the fight against Covid-19.

In similar gestures, Thaiholdings and LienVietPostBank on February 5 donated a combined VND21 billion to the Ministry of Health to acquire Covid-19 vaccines. Minister of Health Nguyen Thanh Long, speaking at the donation ceremony, highly regarded the generosity of the two companies, stressing “access to Covid-19 vaccines is a top priority of the healthcare sector.”

The minister also reckoned the development of domestic vaccine candidates, saying initial but encouraging results have been achieved. Nanogen has surpassed the first-stage clinical trial and is ready for the second-stage trial, said the minister, referring to the local vaccine candidate. Meanwhile, two other locally-developed candidates by IVAX and VABIOTEC have yielded highly-prospective pre-clinical results.

The development of local Covid-19 vaccines has also earned strong support from local enterprises. Besides giving financial support to buy vaccines, the multi-sector business corporation Vingroup on February 27 handed VND20 billion to the Ministry of Health to support the clinical trial of Covivac vaccine by IVAX. This support, said Minister Long at the donation ceremony, would help speed up the clinical trial of the local vaccine candidate, helping the country launch a Made-in-Vietnam Covid-19 vaccine in the coming time.

According to the health ministry’s website, Vingroup is a strong pioneer in backing the fight against Covid-19. Last year, the group provided over VND1,270 billion, or more than US$50 million, to fund activities against the pandemic, including manufacturing ventilators, acquiring medical machines, and financing projects to respond to Covid-19 outbreaks.

The list of donors for the fight against Covid-19 has been extending over the past year since the pandemic hit the country. These include Nestle Vietnam and Lavie – the latter being a member of Nestle Group – donating nearly VND40 billion, and Vietcombank giving VND4.2 billion to Hai Duong Province to buy a Covid-19 diagnosis machine, among others.

Vaccines for own workers

Before giving their helping hand to the community, many enterprises have earlier pledged to protect their own workers by seeking approval from health authorities to vaccinate their employees against Covid-19.

Kim Oanh Group, for example, in early March unveiled its plan to acquire over 5,000 vaccine doses for its employees and their relatives who will be given the shot all free of charge upon approval from the health ministry, according to Tuoi Tre. Hung Thinh Corporation has also announced its plan to buy over 14,000 doses of Covid-19 vaccines for all its staff and their familities. This similar move has also been announced by other enterprises, including Dat Xanh, An Gia, Hi-Kool Vietnam, and Gotec Land among others.

Nguyen Dinh Trung, chairman of Hung Thinh, said the corporation as well as many other enterprises are willing to finance inoculation against Covid-19 for all their employees and their relatives. “Such a move is not only a necessary response to protect the workforce as the most valuable asset of enterprises, but also a corporate responsibility to share the burden with the State, the community and the entire society,” Trung was quoted in He furthered that with vaccines as a shield, the war against Covid-19 will certainly come to success.

In a recent meeting, Minister of Health Nguyen Thanh Long rallied the participation of the business community in the vaccination drive, saying their support would help the country realize the program to safeguard all the people from the pandemic. According to the ministry, Vietnam needs to import some 150 million doses of Covid-19 vaccines this year, which will require huge financial resources and exert great pressure on the State budget.

Although protecting the people’s health is not a mandate of the business community, their active participation, either via direct donations to the relevant State agencies or through vaccination plans for their own workers, is also a great contribution to the common cause of the nation to ward off the pandemic for the good of the economy and the community. Such contribution is all the more urgent now that the fourth wave of Covid-19 has attacked the country, with hundreds of infections confirmed each day, which requires not only efforts by State agencies, healthcare authorities and other frontline workers, but also the participation of enterprises. To some extent, enterprises joining the drive can also be considered as frontline forces.



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Toyota offers support to Vietnamese auto part producers



Representatives of the Vietnam Industry Agency and Toyota Motor Vietnam Co., Ltd sign a memorandum of understanding – PHOTO: VIETNAM INDUSTRY AGENCY

HCMC – Toyota Motor Vietnam Co., Ltd signed a memorandum of understanding with the Ministry of Industry and Trade’s Vietnam Industry Agency on May 17 to support local producers of auto accessories to improve their capability to participate in global supply chains.

Accordingly, the two sides will cooperate to support domestic producers of auto parts to strengthen their linkages with auto assemblers. The cooperation project will be executed this year and the next, the local media reported.

They will work to find potential suppliers, connect them with auto manufacturers and assemblers, hold meetings and visits to domestic suppliers and provide training courses.

Toyota will provide basic criteria for the Ministry of Industry and Trade to choose appropriate enterprises. The company will also preliminarily assess local suppliers, while the Ministry of Industry and Trade will provide legal support, consultants and potential suppliers and support in training.

Pham Tuan Anh, deputy head of the Vietnam Industry Agency, said the lack of connections between Vietnamese and foreign-invested firms had affected the production and economic development.

The development of supporting industries, enhancement of the connections between domestic and foreign-invested enterprises and establishment of local supply chains are core factors to ensure the sustainable development of Vietnam’s industry, Anh added.

Meanwhile, Toyota Vietnam President Hiroyuki Ueda said the advantage of Vietnam’s supporting industries was the high quality but low cost of local human resources.

However, the supply capacity of local firms remains limited, while their production scale is small. Further, they are dependent on high-quality material imports.

Their experiences and governance capacity are also limited, so their production costs double and triple those of other countries in the region, Hiroyuki noted.

Therefore, Toyota is backing Vietnamese firms in supporting industries to increase the localization rate of their products.

Last year, the Ministry of Industry conducted a survey and selected 200 potential suppliers.

Toyota later chose six among the 200 firms to involve them in its supply chains.


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