Vietnam gas power holds long-term value: Report

VIETNAM'S power sector - especially gas-fired plants - offers long-term value to investors, given the expected surge in demand for electricity, even though tariffs are low for now.

That's according to research analysts from Maybank Kim Eng, who believe that rising manufacturing investment and the growth of cities will fuel the sector's prospects.

Despite the risk of fuel shortages from declining domestic production yields and the lack of facilities, such as regasification terminals, that could support supply imports, natural gas was still tapped as the most promising power source, compared with the alternatives.

Analysts Le Nguyen Nhat Chuyen and Tyler Manh Dung Nguyen noted that hydroelectric power "has already been almost fully exploited in Vietnam", even as hydroelectric plants could also be affected by unpredictable weather, while coal-fired plants increasingly rely on imported fuel, lack a stable track record and might see taxes go up on their environmentally-unfriendly operations.

Instead, the analysts named gas-fired plant operators PetroVietnam Power and Nhon Trach 2 as players to watch, based on their market position and efficiency.

Vietnam's electricity tariffs are far below other markets - 8.1 US cents per kilowatt-hour, against a regional average of 12.5 US cents and a global average of 14 US cents - but the report noted that the authorities are working on a market-based tariff mechanism to raise rates, and "over the long run, we see potential upside from gradual upward tariff revisions" for investors.

"By 2021, we may see a significant improvement in terms of earnings for power plants when the proportion of electricity sold at market price is much higher," the report said, while warning that project delays and a weak grid system pose the risk of severe power shortages from 2020.

The analysts called for better policy for the energy sector "that sets out a systematic and long-term approach to integrated energy planning, policy formulation and sector development", provides nationwide capacity planning, and regulates effective bidding for potential investors.

Until then, "energy resource management is inefficient and there is a serious lack of infrastructure", the report lamented, adding that "the allocation of capacity is also inefficient, as there is adequate electricity in the north but there is a serious shortage in the south of Vietnam".

The analysts reiterated the World Bank's call for Vietnam to raise installed capacity by between 6,000 megawatts (MW) and 7,000MW a year, which has a price tag of US$148 billion by 2030.