investing in indochina power projects to secure energy supply

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AGENCY

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• Key energy policies, targets and objectives in Indochina region countries

• Power Demand and Supply in Indochina region countries

• Investment Opportunities in Indochina Power Sector

• Financing Options for Power Investment Project

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Overview on Indochina Power • Indochina region: A peninsula of

Southeast Asia comprising Vietnam, Laos, Cambodia, Thailand, Myanmar, and the mainland territory of Malaysia

• But we are talking only the power industry in Cambodia, Laos, Myanmar and Vietnam

• Indochina and GMS regional electricity market: To address the rapid demand growth and concerns on energy security, the Indochina region together with the GMS countries has been developing regional cooperation in the power sector, regional transmission networks and promoting cross-border investments in energy resources with the purpose of developing a regional electricity market

3 WEO 2013 Special report

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Power Trading in Indochina Region • Power trading in Indochina:

The power trading market in Indochina still remain dominated by state-owned utilities: Cambodia: With a consolidate license, the state-owned Electricité du Cambodge

(EDC) is the dominant key player in the electricity market Laos: Electricité du Laos (EDL) is the state corporation of Laos that holds

a monopoly on power market Myanmar: Myanmar Electric Power Enterprise under the Ministry of Electric

Power is responsible for the development and implementation of transmission network

Vietnam: Electricity of Vietnam (EVN), a state owned enterprise under the jurisdiction and management of the Ministry of Industry and Trade, holds a monopoly on electricity transmission and distribution

• Although there is large-scale penetration by independent power producers (IPPs) in all countries except Vietnam.

• The IPPs have been developed by the state-owned entities in some cases

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Power Trading in Indochina Region Electricity transmission and distribution: Generation, transmission and

distribution are vertically integrated in Cambodia, Laos and Vietnam while in Myanmar, transmission and distribution are integrated Cambodia:

Through three different types of licensees: EDC, IPPs, and consolidated licensees including REEs

Private participation in transmission: First private company: (Cambodia) Power Transmission Lines Co Ltd with a financial support from ADB

Laos: EDL owns and operates the electricity generation, transmission and distribution. EDL also manages the import and export from the national electricity grid

Myanmar: Distribution systems operated through The Yangon City Electricity Supply Board in Yangon City and the Electricity Supply Enterprise covers the rest of Myanmar including off-grid generation and distribution

Vietnam: EVN holds a monopoly on electricity transmission and distribution

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Power Trading in Indochina Region • Competitive power market: None of the countries has introduced competitive power

markets, either at the wholesale or retail level Vietnam has issued and is implementing a road map to

develop competitive power trading market (2015-2022) and operate a competitive retail sale power market (after 2022) but now still a single-buyer market model

Cambodia, Laos and Myanmar are small for competitive power markets to be realistic

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Key energy policies, targets and objectives in Indochina region • Cambodia: Develop hydropower to lower cost of power domestically Reach a 15% share of renewables in generation by 2015 Manage development of petroleum resources to secure

supplies and utilize revenues to grow the economy and reduce poverty

Increase grid-quality electricity access to 70% of households by 2030 (and 100% electricity access in any form for villages by 2020)

Reduce final energy demand intensity by 10% by 2030 7

WEO 2013 Special report

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Key energy policies, targets and objectives in Indochina region • Laos:

Develop hydropower and other renewable resources for domestic and export markets

Build 5 GW of new hydropower capacity and 1.9 GW of coal-fired capacity by 2015

Improve transmission lines in the northern, central and southern areas and links with Thailand and Vietnam

Increase share of renewables (including traditional biomass) in primary energy supply by 30% by 2025, including a 10% target for bio-fuels in transport

Reduce final energy consumption by 10% by 2025 Increase household electrification to 80% by 2015 and 90% by 2020


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Key energy policies, targets and objectives in Indochina region • Myanmar:

Targets a reduction in primary energy consumption of 5% in 2020 and 8% by 2030 (compared with business-as-usual) and an increase in the share of renewables in power generating capacity to 15-18% by 2020

As part of power sector reforms, electricity prices were increased in January 2012

Diesel and gasoline prices were indexed to Singapore spot market prices in 2011


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Key energy policies, targets and objectives in Indochina region • Vietnam

Reach 75 GW of generation capacity by 2020 and 150 GW by 2030 Achieve 5% of power generation from renewable energy resources

by 2020 and 12 GW of nuclear power by 2030 Encourage private investment in the power sector Efficiency measures to save 5-8% of energy consumption over

2010-2015 Further develop local natural gas resources, increase imports and

more investment in infrastructure Build oil stocks equivalent to 90 days of net imports by 2025 Reach 100% electrification of rural households by 2020. Cut CO2

emissions intensity by 8-10% by 2020 compared with 2010 levels 10 WEO 2013 Special report

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Power Demand and Supply in Indochina region

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• Cambodia: Electricity supply currently does not meet the basic demands In 2011, 45% of the total national electricity demand of 2,674 GWh was covered by

imports from Thailand, Vietnam and Lao PDR while the national electrification increased to 34%

Cambodia’s total energy consumption is projected to grow at an average annual rate of 5.2% for the period 2009 to 2035 with an assumed total energy demand of 5,948ktoe in 2035

12 EUEI PDF report

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• Laos: The average yearly growth rate of energy

demand in period 2010-2020 are 21.1% and 17.9% respectively %

Laos is importing electricity from China, Thailand and Vietnam while exporting a large amount of hydropower to Thailand since it has to re-import electricity to supply provinces that are not connected to the national power grid

However, by 2015 Laos would not need to import electricity. At present, Laos has about 20 dams with combined installed power of 3,000MW and in 2015, this figure is expected to reach 5,735MW, and 11,909 MW in 2020 (the report of the Ministry of Energy and Mines)

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FFRC eBOOK 8/2012

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Power Demand and Supply in Indochina region • Myanmar: • Myanmar’s per capita electricity consumption is estimated at 100 kilowatt hours

(KWh) in 2010, lowest among the ASEAN-10 countries while less than 25 percent of Myanmar has access to electricity

• The demand will double from 12,459 million kWh in 2012-13 to 25,683 million kWh in 2018-19 with a compound rate of growth of 13% per year %

14 EUEI PDF report

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Power Demand and Supply in Indochina region • Vietnam: Vietnam will soon face seriously with power

shortage if it fails to increase its’ power generation capacity. Since 2007, Vietnam has been lacking 800-1,000MW a year

Vietnam imported about 1,000 MW from China, accounting for 3-4 per cent of its’ domestic power production

Vietnam planned to import more electricity through its investment in several power plants in Lao and Cambodia

The national energy deficit is forecast to be approximately 10 per cent by 2015 and 70 per cent by 2025

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Investment Opportunities in Indochina Power Sector

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Investment Opportunities in Indochina Power Sector • Role of Infrastructure Development:

Infrastructure investment, especially in energy sector: Key to the development of a stable and prosperous economy

Spending an additional 1% of world GDP on infrastructure would increase global GDP by 2% and GDP in developing countries by almost 7% (World Bank’s estimate)

Rapid economic growth has put pressure on Indochina's infrastructure

ADB recently plotted the 10-year strategic framework for infrastructure development in Indochina through 2022 focused on 9 sectors: energy, telecom, trade and investment, tourism, environment, human resource development and agriculture

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Investment Opportunities in Indochina Power Sector

• Investment Demand for Power Infrastructure: Electricity shortage: A major hindrance to economic

development Consistently high GDP growth has put pressure on

Indochina's infrastructure, and this region needs new investment plans

The Indochina countries has and will continue to require significant investment in the power sector

The Indochina countries are planning for significant investment increases in their electricity, especially in thermal and hydro power projects

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Investment Opportunities in Indochina Power Sector • Investment Demand for Power Infrastructure: Indochina region countries have very strong potential for growth

with lots of opportunities for foreign investors. But also have many challenges to solve, lacking of electricity

infrastructure This region demands for huge investment in power infrastructure:

Myanmar: For the power generation sector: An investment of roughly US$50 billion (Frost & Sullivan Report)

Vietnam: A need of new investment of US$ 48,8 billion to triple electricity capacity to 75,000 MW by 2020 and US$75 billion for the period of 2021-30 ( National Power Master plan VII)

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Investment Opportunities in Indochina Power Sector • Investment Potential of Indochina Power Sector :

Opportunities exist for investment in Indochina power generation as this region’s electricity demand continues growing robustly

Many people in the Indochina region have no access to modern forms of energy. In 2008, 83% of households in Cambodia, 80% in the Laos, and over 50% in Viet Nam still used wood for fuel so it is critical to increase sustainable energy investments

The Indochina region countries have diverse energy resources that are unevenly distributed

With the advantage from geographic condition, especially located in Greater Mekong Subregion, the Indochina region countries have a huge basin of renewable energy sources, including solar, wind, biomass, geothermal and hydropower 20

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Investment Opportunities in Indochina Power Sector • Investment Potential of Indochina Power Sector : Opportunities to be funded from the financial institutions and

investment funds: World Bank, ADB, IMF have been having many financial support and

investing into many investment projects for development of power infrastructure and generation systems in Indochina region

Indochina Capital planned to spend US$50 million in financing for its Mekong Renewable Resources Fund (MRRF), new energy focused fund intends to acquire equity interests in thermal and hydro power projects in Vietnam, Laos, and Cambodia

Saigon Asset Management established and is raising funds for an Indochina Energy Fund to invest in thermal and hydro power projects and companies in Vietnam, Cambodia, and Laos

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Financing Options for Power Investment Project

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Financing Options for Power Investment Project • Financing Model for Power Investment Project:

Government investment funding and preferential policies

Official Development Assistance (ODA)

Loan from commercial banks or financial institutions

Clean Development Mechanism (CDM)

Public Private Partnership (PPP)

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Financing Options for Power Investment Project • Government investment funding and preferential

policies: Infrastructure investments account for high GDP

percentage State budget financing big investment projects Preferential policies from Government: Fiscal credibility Price subsidies Feed-in tariff (FIT)

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Financing Options for Power Investment Project • Official Development Assistance (ODA): Financing Programs from

World Bank; ADB; IMF; other countries’ ODA funds (e.g. Japan, European Union, Sweden, Germany, France, USA, etc…) Non return ODA Preferential loans

• Loan from domestic and international commercial banks or financial institutions: Traditional financing source; Preferential policy to loan for RE projects

• Clean development fund of investment funds • Clean Development Mechanism (CDM):

Certified Emissions Reductions (CERs) trading

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Financing Options for Power Investment Project

• Public Private Partnertship (PPP): Alternative financing source A means to enable the development or improvement

of energy in infrastructure through the participation of private and government entities

• Why PPP is attractive as an off-budget mechanism for infrastructure development?

• Government Guarantee in PPP projects:

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Financing Options for Power Investment Project • Common type of PPP: Build Operation Transfer (BOT) • Build Operation Transfer (BOT): A private entity receives a franchise from the private or

public sector organization to finance, design, construct, and operate a facility for a specified period of time, after which the ownership is transferred back to the funding entity

Many other variants such as Build-Transfer-Operate (BTO), Build-Own-Operate-Transfer (BOOT) and Build-Rehabilitate-Operate-Transfer (BROT)

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Financing Options for Power Investment Project • BOT Law in Indochina:

The BOT model is applied in mostly the big projects for infrastructure development in Indochina . This region countries have issued many laws and regulatory backgrounds on BOT projects

However, the current legal framework does not address the significant legal issues hindering the foreign investment in BOT projects => Need a entire regulatory reform to develop the current BOT laws to match with international standards

• How to best structure investment in power generation: Example from Vietnam: Financing Phu My 2.2 and Phu

My 3 power plant Precedents for subsequent large-scale financing First BOT power plant invested by foreign investors

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DUANE MORRIS VIETNAM LLC

Thank you!

Duane Morris Vietnam Duane Morris Myanmar Pacific Place, Unit V1307/08, 13th Floor, No. 10 Phoyazar Street, 15 Ward, 83B Ly Thuong Kiet, Hoan Kiem Dist Baukhtaw Yankin Township Hanoi, Vietnam Yangon Suite, Myanmar

Contact email:

[email protected]

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