June 28, 2010 Vietnam blackouts prompt calls for reform ...
The rolling blackouts in Vietnam this summer have infuriated businesses, farmers and families, but they are also building pressure for a major reform: the breakup of Electricity Vietnam.
Since the power cuts began, infuriated farmers in Thanh Hoa province have forced officials from Electricity Vietnam (EVN), the national power monopoly, to sit outside in the 40-degree heat, and the country’s small business association is demanding compensation for firms.
Most significantly, though, the fury has generated the most political pressure that has been applied in recent years to break up the power company, a goal reformers have sought for years.
“The shortage of electricity will last forever unless EVN is reformed,” said Hoang Van Dung, deputy chairman of the Vietnam Chamber of Commerce and Industry.
With demand for electricity growing at 15 per cent per year, analysts blame the outages on Vietnam’s failure to attract sufficient foreign investment in new power plants. But foreign investors have been discouraged by EVN’s monopoly over power distribution, and by low government-regulated electricity prices.
Plans to separate EVN’s distribution and generation arms, and create a market in electricity to attract investors, were first proposed in 2007, and the Ministry of Industry and Trade last year put forward its latest plan.
So far, the power company has proven strong enough to defer the proposed reforms. But now, some officials are saying they can wait no longer, and businesses denied access to electricity are up in arms.
Nguyen Dinh Xuan, a politician in the national assembly, has called for a special meeting of the legislature to discuss electricity reform, including the breakup of EVN.
The government has raised the fines it charges EVN for unexpected power cuts tenfold to a maximum of 40m dong ($2100) per outage. Mr Kiem thinks this is far too low to have any effect.
“To solve the roots of the problem, we have to break EVN’s monopoly,” Cao Sy Kiem, former head of Vienam’s state bank and now head of the country’s small and medium enterprise association told the FT.
Nguyen Quang A, an economist who formerly headed the only independent think-tank in Vietnam, said there should be at least three companies competing in each sub-sector of the electricity business: generation, transmission, and distribution.
“The government should not control these sectors, it should act as a referee,” said Mr Quang A.
Such calls have been heard before, and some analysts say the power shortages are unlikely to lead to major reforms.
“It’s not enough to change anything,” said Oliver Massmann, a lawyer at Duane Morris in Hanoi and a longtime student of Vietnam’s power sector.
Mr Massmann said the fundamental problem was not EVN’s monopoly but low power prices, which the government caps at just 8.2 cents per kilowatt-hour. That partly reflects concerns about inflation and popular opposition to price hikes.
While EVN’s monopoly power has discouraged foreign investment, Vietnam has managed to attract some international funds for plants. AES, the US power company, signed a deal to invest $400m in a 1200 megawatt coal-fired plant in April. But EVN is the sole investor in the country’s first nuclear power plant, which it contracted Russia’s Atomstroyexport to build this spring.
While pressure is growing for action to break up EVN, the government’s reform plans remain unclear.
In April, an industry group called the Vietnam Energy Association proposed to create an independent national electricity purchasing corporation to buy electricity from generators and sell it to producers. Tran Viet Ngai, chairman of the association, says EVN also has its own plan. But a ministry official said none of the other plans had official status.
“There is only one plan to reform EVN, and we, the Ministry of Trade and Industry, submitted it to the government,” said Pham Manh Thang, director of the ministry’s Electricity Regulatory Authority. “I don’t know whether it has been approved or not.”
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ECONOMY: http://www.state.gov/r/pa/ei/bgn/4130.htm#econ
Following economic stagnation after reunification from 1975 to 1985, the 1986 Sixth Party Congress approved broad economic reforms (known as "Doi Moi" or renovation) that introduced market reforms, opened up the country for foreign investment, and dramatically improved Vietnam's business climate. Vietnam became one of the fastest-growing economies in the world, averaging around 8% annual gross domestic product (GDP) growth from 1990 to 1997 and 6.5% from 1998-2003. From 2004 to 2007, GDP grew over 8% annually, slowing slightly to 6.2% in 2008 and to 5.3% in 2009. Viewed over time, foreign trade and foreign direct investment (FDI) have improved significantly. The average annual foreign investment commitment has risen sharply since foreign investment was authorized in 1988, although the global economic crisis affected FDI in 2009. In 2009, registered FDI (including new and additional capital) was $21.4 billion, a fall of about 70% compared to 2008. Disbursed FDI capital totaled $10.0 billion in 2009, down 13% compared to 2008. In 2008, registered FDI was $71.7 billion and actual FDI was $11.5 billion. From 1990 to 2005, agricultural production nearly doubled, transforming Vietnam from a net food importer to the world's second-largest exporter of rice. In 2009, Vietnam’s exports ($56.6 billion) were down by 9.7%. Vietnam’s imports ($68.8 billion) were down by 14.7% from 2008, but the country is still running a $12.2 billion trade deficit.
The shift away from a centrally planned economy to a more market-oriented economic model has improved the quality of life for many Vietnamese. Per capita income rose from $220 in 1994 to $1,052 in 2009. Year-on-year inflation was reduced to 6.8% in 2009 from 23% in 2008, but most estimates predict inflation will be higher in 2010. The average Vietnamese savings rate is about 25% of GDP. Urban unemployment has been rising in recent years, and both urban and rural underemployment, estimated to be between 25% and 35% during non-harvest periods, is significant.
The Vietnamese Government still holds a tight rein over major sectors of the economy through large state-owned economic groups and enterprises and much of the banking system. The government has plans to reform key sectors and partially privatize state-owned enterprises, but implementation has been gradual and the state sector still accounts for approximately 36% of GDP. Greater emphasis on private sector development is critical for job creation.
The 2001 entry-into-force of the Bilateral Trade Agreement (BTA) between the U.S. and Vietnam was a significant milestone for Vietnam's economy and for normalization of U.S.-Vietnam relations. Bilateral trade between the United States and Vietnam has expanded dramatically, rising from $2.91 billion in 2002 to $15.4 billion in 2009. The U.S. is Vietnam's second-largest trade partner overall (after China).
Implementation of the BTA, which includes provisions on trade in goods and services, enforcement of intellectual property rights, protection for investments, and transparency, fundamentally changed Vietnam's trade regime and helped it prepare to accede to the World Trade Organization (WTO) in 2007.
Vietnam was granted unconditional normal trade relations (NTR) status by the United States in December 2006. To meet the obligations of WTO membership, Vietnam revised nearly all of its trade and investment laws and guiding regulations and opened up large sectors of its economy to foreign investors and exporters.
A U.S.-Vietnam Trade and Investment Framework Agreement (TIFA), a bridge to future economic cooperation, was signed in 2007 during President Triet's visit to the United States. The first TIFA Council occurred in December 2007 in Washington, and there have been five TIFA meetings since then. During Prime Minister Dung's June 2008 visit, the United States and Vietnam committed to undertake Bilateral Investment Treaty (BIT) negotiations, and have completed three rounds of talks since then.
Since the power cuts began, infuriated farmers in Thanh Hoa province have forced officials from Electricity Vietnam (EVN), the national power monopoly, to sit outside in the 40-degree heat, and the country’s small business association is demanding compensation for firms.
Most significantly, though, the fury has generated the most political pressure that has been applied in recent years to break up the power company, a goal reformers have sought for years.
“The shortage of electricity will last forever unless EVN is reformed,” said Hoang Van Dung, deputy chairman of the Vietnam Chamber of Commerce and Industry.
With demand for electricity growing at 15 per cent per year, analysts blame the outages on Vietnam’s failure to attract sufficient foreign investment in new power plants. But foreign investors have been discouraged by EVN’s monopoly over power distribution, and by low government-regulated electricity prices.
Plans to separate EVN’s distribution and generation arms, and create a market in electricity to attract investors, were first proposed in 2007, and the Ministry of Industry and Trade last year put forward its latest plan.
So far, the power company has proven strong enough to defer the proposed reforms. But now, some officials are saying they can wait no longer, and businesses denied access to electricity are up in arms.
Nguyen Dinh Xuan, a politician in the national assembly, has called for a special meeting of the legislature to discuss electricity reform, including the breakup of EVN.
The government has raised the fines it charges EVN for unexpected power cuts tenfold to a maximum of 40m dong ($2100) per outage. Mr Kiem thinks this is far too low to have any effect.
“To solve the roots of the problem, we have to break EVN’s monopoly,” Cao Sy Kiem, former head of Vienam’s state bank and now head of the country’s small and medium enterprise association told the FT.
Nguyen Quang A, an economist who formerly headed the only independent think-tank in Vietnam, said there should be at least three companies competing in each sub-sector of the electricity business: generation, transmission, and distribution.
“The government should not control these sectors, it should act as a referee,” said Mr Quang A.
Such calls have been heard before, and some analysts say the power shortages are unlikely to lead to major reforms.
“It’s not enough to change anything,” said Oliver Massmann, a lawyer at Duane Morris in Hanoi and a longtime student of Vietnam’s power sector.
Mr Massmann said the fundamental problem was not EVN’s monopoly but low power prices, which the government caps at just 8.2 cents per kilowatt-hour. That partly reflects concerns about inflation and popular opposition to price hikes.
While EVN’s monopoly power has discouraged foreign investment, Vietnam has managed to attract some international funds for plants. AES, the US power company, signed a deal to invest $400m in a 1200 megawatt coal-fired plant in April. But EVN is the sole investor in the country’s first nuclear power plant, which it contracted Russia’s Atomstroyexport to build this spring.
While pressure is growing for action to break up EVN, the government’s reform plans remain unclear.
In April, an industry group called the Vietnam Energy Association proposed to create an independent national electricity purchasing corporation to buy electricity from generators and sell it to producers. Tran Viet Ngai, chairman of the association, says EVN also has its own plan. But a ministry official said none of the other plans had official status.
“There is only one plan to reform EVN, and we, the Ministry of Trade and Industry, submitted it to the government,” said Pham Manh Thang, director of the ministry’s Electricity Regulatory Authority. “I don’t know whether it has been approved or not.”
____________
ECONOMY: http://www.state.gov/r/pa/ei/bgn/4130.htm#econ
Following economic stagnation after reunification from 1975 to 1985, the 1986 Sixth Party Congress approved broad economic reforms (known as "Doi Moi" or renovation) that introduced market reforms, opened up the country for foreign investment, and dramatically improved Vietnam's business climate. Vietnam became one of the fastest-growing economies in the world, averaging around 8% annual gross domestic product (GDP) growth from 1990 to 1997 and 6.5% from 1998-2003. From 2004 to 2007, GDP grew over 8% annually, slowing slightly to 6.2% in 2008 and to 5.3% in 2009. Viewed over time, foreign trade and foreign direct investment (FDI) have improved significantly. The average annual foreign investment commitment has risen sharply since foreign investment was authorized in 1988, although the global economic crisis affected FDI in 2009. In 2009, registered FDI (including new and additional capital) was $21.4 billion, a fall of about 70% compared to 2008. Disbursed FDI capital totaled $10.0 billion in 2009, down 13% compared to 2008. In 2008, registered FDI was $71.7 billion and actual FDI was $11.5 billion. From 1990 to 2005, agricultural production nearly doubled, transforming Vietnam from a net food importer to the world's second-largest exporter of rice. In 2009, Vietnam’s exports ($56.6 billion) were down by 9.7%. Vietnam’s imports ($68.8 billion) were down by 14.7% from 2008, but the country is still running a $12.2 billion trade deficit.
The shift away from a centrally planned economy to a more market-oriented economic model has improved the quality of life for many Vietnamese. Per capita income rose from $220 in 1994 to $1,052 in 2009. Year-on-year inflation was reduced to 6.8% in 2009 from 23% in 2008, but most estimates predict inflation will be higher in 2010. The average Vietnamese savings rate is about 25% of GDP. Urban unemployment has been rising in recent years, and both urban and rural underemployment, estimated to be between 25% and 35% during non-harvest periods, is significant.
The Vietnamese Government still holds a tight rein over major sectors of the economy through large state-owned economic groups and enterprises and much of the banking system. The government has plans to reform key sectors and partially privatize state-owned enterprises, but implementation has been gradual and the state sector still accounts for approximately 36% of GDP. Greater emphasis on private sector development is critical for job creation.
The 2001 entry-into-force of the Bilateral Trade Agreement (BTA) between the U.S. and Vietnam was a significant milestone for Vietnam's economy and for normalization of U.S.-Vietnam relations. Bilateral trade between the United States and Vietnam has expanded dramatically, rising from $2.91 billion in 2002 to $15.4 billion in 2009. The U.S. is Vietnam's second-largest trade partner overall (after China).
Implementation of the BTA, which includes provisions on trade in goods and services, enforcement of intellectual property rights, protection for investments, and transparency, fundamentally changed Vietnam's trade regime and helped it prepare to accede to the World Trade Organization (WTO) in 2007.
Vietnam was granted unconditional normal trade relations (NTR) status by the United States in December 2006. To meet the obligations of WTO membership, Vietnam revised nearly all of its trade and investment laws and guiding regulations and opened up large sectors of its economy to foreign investors and exporters.
A U.S.-Vietnam Trade and Investment Framework Agreement (TIFA), a bridge to future economic cooperation, was signed in 2007 during President Triet's visit to the United States. The first TIFA Council occurred in December 2007 in Washington, and there have been five TIFA meetings since then. During Prime Minister Dung's June 2008 visit, the United States and Vietnam committed to undertake Bilateral Investment Treaty (BIT) negotiations, and have completed three rounds of talks since then.
