Dr. Oliver Massmann – Duane Morris Vietnam LLC
Frontier market vs. Emerging market – How is it defined?
As a term invented in 1981 by then World Bank economist Antoine van Agtmael, an emerging market is an economy that is thriving, a promising market with risks and rewards in the eyes of foreign investors. The term “frontier market” was coined 11 years later by Farida Khambata as a term used for smaller, riskier and less accessible markets than emerging markets.
According to the classification of Morgan Stanley Capital International (MSCI), in order to be classified as an emerging market, one country has to satisfy a majority of indexes as “no major issues, improvements possible” out of its eighteen different indexes for five market accessibility criteria. However, as of June 2022, despite its effort in concluding different international trade instruments for the past years, Vietnam has not yet been recognized as an emerging market by the MSCI and is still classified as a frontier market. This puts Vietnam at risks in meeting its self-established 2025 deadline to be an emerging market.
Where does Vietnam stand now?
Currently, according to the MSCI, Vietnam has only established itself as a country with no issue on a certain areas of market infrastructure and openness to foreign ownership while other indexes has shown that improvements are highly needed for Vietnam to be upgraded to emerging market status, including foreign ownership limit (FOL) level, equal rights to foreign investors, information flow, foreign exchange market liberalization level, investment instruments.
It is important to note that, there are four countries in the South East Asia (SEA) region that are established as emerging markets by the MSCI, namely the Philippines, Thailand, Malaysia, and Indonesia since its start date of collecting data back from 1987. Looking at the liberalization level of market access under the WTO, Vietnam is on par with Singapore – the most developed country in SEA region. With the participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and European Union–Vietnam Free Trade Agreement (EVFTA) of Vietnam, Vietnam is way ahead of the four SEA emerging markets in terms of international integration. Vietnam is the second country after Singapore that has concluded an FTA with the European Union. Taking telecommunication services for example, Vietnam is the most open country in terms of market access under the WTO since Vietnam allows the joint venture of up to 70% foreign ownership while the Philippines, Thailand, Malaysia, and Indonesia only allow joint ventures with an FOL of 30 percent. Under the EVFTA and CTPPP, foreign investors are allowed to take control or even wholly own a telecommunication company in Vietnam. Vietnam’s better market access commitments could be found in other service sectors such as construction and education compared to that of the Philippines, Malaysia, and Indonesia.
Although experts might believe that Vietnam is more developed than the four emerging markets in SEA region in a wide array of indexes and that Vietnam is doing the best among the frontier markets, from the MSCI’s point of view, it seems that they pay more attention to banking services and the indexes for treatment for foreign investors as well as investment instruments. Currently, for banking services, Vietnam only allows maximum 30 percent foreign ownership. Moreover, the foreign currency market, information flow of the market, and investment instruments in Vietnam, according to the MSCI, are still under development while they are already established as strong traits of the mentioned four countries. Looking at the investment instruments index, while the MSCI does not make any assessment on Vietnam, all of the four horsemen has been rated highest in the ranking of MSCI in this regard. This reflects the frequently use of non-voting depositary receipt (NVDR) in the Philippines, Thailand, Malaysia, and Indonesia. Meanwhile, it is still a debatable topic in Vietnam on whether NVDR or lower restrictions on conditional business lines is the silver bullet for Vietnam and the definite answer has not yet been concluded. With the introduction of the new law on investment, law on securities and law on investment in the recent years without the concept of NVDR, it seems that the State will focus more on easing restrictions on foreign investment in certain specific sectors, and, the best is yet to come.
To put the MSCI aside, reforms in Vietnam are not anticipated to happen anytime soon due to the mass dot lo (“blazing furnace”) campaign of Mr. Nguyen Phu Trong, the General Secretary of the Vietnamese Communist Party (VCP) in his effort to purge the VCP from corruption completely. From 2020 until now, a large number of high-ranking officials and financial giants have been arrested due to bribery, corruption, and fraud charges. It is undeniable that the recent infightings, with the hardest hit being the resignation of the President – Mr. Nguyen Xuan Phuc, have also affected the Government’s decision. The infightings and its aftereffects have significantly hindered relevant authorities from making any major decisions and it appears that the change of law would only commence after all of the in-charge authorities regain their confidence to reach a final resolution.
CTPPP, EVFTA and EVIPA
Despite the lack of investment instruments and the current FOL in Vietnam, it is crystal clear that Vietnam is worth their investment in the eye of foreign investors due to its activeness in the participation in international agreements. The EVFTA, CTPPP, and EVIPA (Investment Protection Agreement with the European Union) were signed by Vietnam in just a period of three years, from 2018 to 2020. The agreements with the world’s largest trading bloc – the EU – have cemented Vietnam’s position as a potential destination for corporate giants from all over the world. While Vietnam is the only SEA country having successfully concluded an FTA with the EU, Malaysia and Vietnam are the two SEA representatives in the CTPPP. Thus, from an international trading and investment perspective, Vietnam is unmatched when it comes to partnership and openness of market access. From a domestic perspective, Vietnam has made its move by ways of replacing the Law on Securities to ease the last FOL in public listed companies at 49 percent and allow the 100 percent FOL for non-critical business sectors.
On another note, the Investor State Dispute Settlement (ISDS) provision under the CTPPP and EVIPA also plays an important role in Vietnam’s investment attractiveness since it provides the investors with high standards of legal certainty and enforceability and protection. Under that provision, for investment related disputes, the investors have the right to bring claims to the host country by means of international arbitration. The arbitration proceedings shall be made public as a matter of transparency in conflict cases. The final arbitration award is binding and enforceable without the local courts’ review of its validity. The Government of Vietnam has to fully implement this commitment within five years from the entry into force of the EVIPA.
Summary and action plan
During COVID-19, Vietnam’s economy saw a steady and positive growth of GDP – a rare sight for a frontier market during an once-in-a-lifetime pandemic. However, as MSCI’s concerns have not yet been addressed and some of the commitments in the CTPPP, EVFTA, and EVIPA have not yet been localized, legal reforms are required for opener investment instruments and lower FOL for certain high-profile sectors. In other words, regardless of the infighting settlement, the government will have to work harder and do their homework under the current signed agreements to realize the emerging market status and ensure investors that they will be rewarded generously once they decide to come to Vietnam. As the self-established deadline is 2025, urgent actions are required since the procedures for amendments of the laws can take years before it becomes effective.
To accelerate the process, competent authorities are recommended to engage and work closely with international commercial experts. It is believed that Vietnam is on the right track but the authorities are not on it right now due to the infightings which are holding back the reforms. It is advisable that, the state officials, with the support of external and international entities, make decision for the long-awaited reforms to amend the law and therefore change the view of international analysts and investors now or it would be too late. Duane Morris Vietnam LLC, led by Dr. Oliver Massmann with almost 25-year working experience in Vietnam, could support the Government in this process.
FINANCE
Majority of banks expect positive profit growth in Q2/2023<https://www.intellasia.net/majority-of-banks-expect-positive-profit-growth-in-q22023-1161916>
DTOL
The Department of Forecasting and Statistics under the State Bank of Vietnam (SBV) has announced the results of the survey on business trends of credit institutions (CIs) in the second quarter (Q2) of 2023. According to the survey results, the business situation of the banking system in Q1/2023 improved slowly compared to the previous quarter. CI assessed that the pre-tax profit of the banking system in Q1/2023 grew but not as expected.
Regarding the outlook for the whole year of 2023, 88,7 percent of CIs expected the profits in 2023 to grow positively compared to 2022 (lower than the rate of 95.2 percent in the previous survey). In addition, 5.7 percent of CIs worried of a negative profit growth this year and 5.7 percent of CIs estimated their profits to be unchanged.
In Q1/2023, according to CIs, the demand for loans, payment services and cards, and savings of customers in Q1/2023 was not as expected. CIs predicted that the demand for using banking services of customers would be positive in Q2/2023, in which the capital demand was expected to increase higher than the demand for savings and payments.
In Q2/2023, CIs forecasted the mobilisation of the entire banking system to increase by an average of 3.2%, and credit to grow by four percent. In the whole year 2023, the mobilisation and credit growth rates are expected at respectively 9.2 percent and 13.1%.
CIs said that the system liquidity in Q1/2023 continued to maintain a good state and recorded a marked improvement compared to Q4/2022. CIs predicted that the liquidity would remain stable in Q2/2023 and continue to improve in 2023 compared to 2022.
At this survey period, CIs all believed that interests rates will continue to decrease in the near future. However, the level of risks was said to go up. CIs assessed a “slight increase” in the ratio of bad debts to outstanding credit in Q1/2023 and expected bad debts to improve further in Q2/2023.
Insurance agencies to review processes, conduct: MoF<https://www.intellasia.net/insurance-agencies-to-review-processes-conduct-mof-1161918>
VNS
Insurance companies must tighten the supervision and inspection of insurance agencies, quality of consultation, and sales, said the Insurance Supervisory Authority, the country’s insurance industry regulator under the Ministry of Finance.
The supervisory said it had received numerous negative feedback from the public over poor insurance consultation, poor transparency and presentation of insurance products.
It demanded insurance agencies immediately take measures to provide clients with complete and accurate information and review the quality of their agents’ consultation and sales techniques.
It stressed that agents’ violations would be dealt with, and their agencies would bear part of the responsibility if said agents acted on the agencies’ behalf.
Meanwhile, the ministry proposed agencies to review and improve customer service quality, business operations, internal regulations and risk management to ensure they are all in compliance with current regulations.
In an earlier development, a Vietnamese actress live-streamed her grievances over her family’s insurance policy and attracted a large amount of attention from the public.
The actress said she bought the policy from Aviva JSc., which was later acquired by MVI Life, and was shocked to find out clauses that she was not aware of previously.
MVI Life said they had been in contact with both the actress and her lawyer to work out the details of her policy.
The insurance company said all clients’ rights and benefits were guaranteed after Aviva’s acquisition, and the company adjusted the actress’s policy after she requested them.
The Ministry of Finance later issued a demand to MVI Life, requesting the agency to review the entire contract it has provided the actress, the disclosure of information during the process and its customer service quality.
MVI Life has been told to review how agents present products and consult clients and the information they provide.
If its agents were found to have violated insurance sales regulations, the agency would be held responsible.
The ministry said it expected a report from MVI Life shortly.
ECONOMY
PM requests ironing out the snags in import-export, investment<https://www.intellasia.net/pm-requests-ironing-out-the-snags-in-import-export-investment-1161904>
VOV
The prime minister has directed relevant ministries, agencies and localities to resolve difficulties in terms of administrative procedures, capital accessibility, business conditions, debts, taxes and fees to facilitate business production.
In a telegram dated April 10, the PM pointed out that the global economy is fluctuating strongly, thereby negatively impacting global recovery and growth, including post-pandemic recovery efforts in Vietnam.
Amid this context, he said that the designated agencies and localities should remove difficulties and devise measures to support businesses, accelerate key projects, and promote production, thereby creating a driving force for further economic growth in investment, export, and consumption.
He assigned the heads of the municipal and provincial administrations to review and make a report on production and business activities, construction and import-export, as well as key investment projects.
The report should clearly outline the difficulties related to the market, employment, credit, investment procedures, and site clearance, and propose solutions to these problems, the PM said in the telegram.
The report should be sent to the Ministry of Planning and Investment on April 13 at the latest for consideration and submission to the PM.
The PM said that he would then assign government members to work with localities aimed at clarifying the causes and coming up with feasible solutions in a bid to facilitate recovery.
Statistics show that the Vietnamese economy expanded by only 3.32 percent in the first quarter of the year, the second lowest growth rate in the 2011 to 2023 period. Most notably, the growth of major industries such as textiles, leather and footwear, and furniture processing fell by 0.82 percent quarter-to-quarter due to a shortage of export orders.
Agro sector export figures taking a hit<https://www.intellasia.net/agro-sector-export-figures-taking-a-hit-1161905>
VIR
The plunge in prices of some key products has pulled down the import-export turnover of the agro-forestry-fishery sector in the first quarter of this year.
In statistics published by the general Department of Vietnam Customs, the Q1 import-export turnover of the sector reached $20.63 billion, down 11.2 per cent on-year. Notably, the export value hit $11.19 billion and import value was $9.44 billion, signifying an on-year decrease of 14.4 and 7.2 per cent, respectively.
The group of agricultural exports reported a slight increase of 3.8 per cent to $5.73 billion. Meanwhile, the forestry sector earned $3.11 billion and the aquaculture sector was $1.79 billion, showing drops of 28.3 and 29 per cent on-year. The export turnover of raw materials dropped by 26.8 per cent on-year to $458 million.
The performance of aquaculture is the bleakest. Statistics published by the Vietnam Association of Seafood Exporters and Producers (VASEP) show that shrimp, one of the key exported aquaculture products, suffered a plunge of 39.4 per cent to $578 million in the first quarter. Tra fish saw a downturn of 33.1 per cent on-year to $422 million, while the export value of tuna was $109 million only, down 30 per cent on-year.
All five leading aquaculture markets of Vietnam reported declines in export value: Japan with $187 million (down 11 per cent), the US $155 million (down 55 per cent), China $151 million (down 11 per cent), South Korea $104 million (down 14 per cent), and Thailand $44 million (down 15 per cent).
Truong Dinh Hoe, general secretary of VASEP, said that global inflation damaged import demand of many countries, while the cost of raw materials and production saw a soaring increase. For example, the cost of input materials climbed to a record level with uncertain forecasts, pushing the price of feed and aquaculture products up.
“The shrimp selling price in Vietnam is 20-30 per cent higher compared to the same product in India and Ecuador, for example,” Hoe said.
He also mentioned the barriers in exporting shrimp to South Korea the largest shrimp import market of Vietnam, which accounts for half of this country’s import demand of 100,000 tonnes per year.
The Vietnam-Korea Free Trade Agreement was implemented in 2015, which was expected to create top conditions for the import tariff for shrimp from Vietnam. However, this product is limited to import in South Korea due to quota limits.
To improve the capacity for shrimp, in mid-March, VASEP sent a document to the Ministry of Finance and Ministry of Agriculture and Rural Development to propose adjusting the import tax for dried soybean, the key ingredient for aquaculture feed, from 2 per cent to zero. VASEP also wants the Ministry of Foreign Affairs to look at the possibility of asking South Korea to remove quotas for shrimp imported from Vietnam.
Despite the first-quarter blips, deputy minister of Agriculture and Rural Development Phung Duc Tien is still optimistic about exporting related products for the year as a whole.
“Vietnam’s export of agro-forestry-fishery products hit a record revenue of $53.2 billion last year, which was up 9.3 per cent, including nearly $11 billion from aquatic products. What is more, the agriculture industry had seven key commodity groups with export turnover of more than $3 billion,” Tien said.
“Thus, it is still possible to generate advantages from these commodity groups to increase export value,” Tien said at a March 30 conference held by his ministry in Hanoi.
“China’s market opening gave great hope for a recovery in demand in this market and other markets worldwide. We expect to see clearer results from the second quarter of 2023,” he said.
INVESTMENT
Hai Phong works to expand diplomacy, promote investment attraction
VNA
Five international delegations paid working trips to Hai Phong in March and on the first days of April proved that the northern port city is always ready to expand diplomacy and relations with partners, thereby promoting investment attraction, boosting exports and improving its competitiveness capacity.
Five international delegations paid working trips to Hai Phong in March and on the first days of April proved that the northern port city is always ready to expand diplomacy and relations with partners, thereby promoting investment attraction, boosting exports and improving its competitiveness capacity.
Receiving a delegation from the US Embassy in Vietnam led by Ambassador Marc E. Knapper on March 1, Standing Vice Chairman of the municipal People’s Committee Le Anh Quan said he hoped the diplomat will introduce more US investors and businesses to invest in the city.
The city’s authorities pledged to create optimal conditions for US investors to explore the local investment environment and seek cooperation opportunities, he said.
For his part, Knapper said that the delegation’s visit aimed to gain a deeper insight into the city’s situation and seek cooperation opportunities.
The delegation also hoped to explore Hai Phong’s methods to rank in the top localities in the provincial competitiveness index (PCI), thus making more US firms aware of the city’s advantages, the diplomat said.
At a reception for the Republic of Korea (RoK)’s Ambassador to Vietnam Oh Young-ju, Secretary of the municipal Party Committee Le Tien Chau affirmed that Korean-invested projects have made important contributions to the city’s development.
The Korean diplomat said that the RoK and Vietnam have enjoyed profound and long-standing cooperative relations, and achieved cooperation results in all fields. Hai Phong is currently an investment centre of Korean enterprises with many successes, notably projects of LG Group.
While working with a delegation from the Singaporean Embassy in Vietnam led by Ambassador Jaya Ratnam, Chau said that Singapore has always been a major investor and trading partner of Vietnam. There are currently 858 FDI projects worth 24.8 billion USD in Hai Phong, including 52 projects from Singaporean investors, with total capital of over 2.6 billion USD.
The official said the city wants to boost collaboration with Singapore in fields where the city-state has strengths such as renewable energy, urban management and digital transformation. Chau also hoped that the Singaporean Ambassador would help connect Hai Phong with Singapore businesses in those fields.
Hai Phong is set to become one of the most developed cities in Asia and the world by 2050 under an adjusted master planning scheme, which has been approved by Deputy Prime Minister Tran Hong Ha.
The city will build broadband information infrastructure, creating a foundation for its smart city development. It plans to set up smart management centres in new urban areas. A new information and communication technology (ICT) parks are also proposed for construction in Nam Dinh Vu, and Kien Thuy and Tien Lang districts.
According to Director of the Hai Phong Economic Zone Authority Le Trung Kien, as the city has defined digital transformation as a driving force for its economic growth, the authority has synchronously implemented many solutions. As a result, the local business investment environment has been improved, making important contributions to the city’s socio-economic development.
Hai Phong continued ranking among the top localities in attracting foreign direct investment (FDI) in the first quarter of this year. As of March 22, the city had lured 385.08 million USD in FDI, equal to 78.89% of the figure in the same period last year, and 17.91% of the yearly plan.
Vietnam remains favourite investment destination for European firms: Report
VNA
Precisely 36% of European firms ranked Vietnam either first, within their top three, or among their top five investment destinations on a global scale, according to the latest Business Climate Index (BCI) report released by the European Chamber of Commerce in Vietnam (EuroCham) and produced by Decision Lab on April 11.
The report highlighted that Vietnam’s draw as a foreign direct investment (FDI) destination remains strong among European business leaders, with 3% more European business stakeholders citing it as one of their top three investment hotspots worldwide.
The BCI, which quantifies the business sentiment of the European business and investment community in Vietnam, held steady at 48 in the first quarter of 2023. Though it remains at the same level it registered as 2022 drew to a close, there are promising indications that European business stakeholders are witnessing a positive shift in their economic outlook.
Encouragingly, the business environment outlook for 2023 is displaying promising signs of betterment. Specifically, the number of respondents who are sanguine about the nation’s economy has risen by 8 points, signaling a growing faith in its prospects, it said.
According to the survey, the number of individuals expecting a downturn in the economy decreased by 6%, while that of those forecasting an upturn in revenue and orders increased by 7%.
The survey results also indicate that the European business and investment community is broadly content with the level of attention policymakers have given to business needs in Vietnam, with a third of respondents expressing significant or moderate satisfaction. This positive feedback is a testament to the government’s ongoing commitment to fostering a business-friendly environment in the country.
However, foreign businesses in Vietnam continue to grapple with regulatory opacity, administrative inefficiencies, and visa and work permit issues.
PROPERTY
Foreign investors case real estate market, but hold on to money
VNE
Mergers and acquisitions involving foreign investors have been scarce in the property market this year, with many merely visiting and seeking information rather than striking deals.
At a seminar on April 7 analysts said that while the M&A market is heating up, there are still many barriers that make the negotiation process tortuous and delay deals.
Dung Duong, managing director of real estate services and investment company CBRE Vietnam, said there has been an increase in new foreign investors interested in the Vietnamese market in recent years. This year 50% of interested parties have been new names in the market.
Previously most investors were from Hong Kong and Singapore, now there are new players from economies such as South Africa and Saudi Arabia.
But despite the rising interest, the number of successful M&A deals is few and far between since Vietnamese businesses are indifferent or unable to meet foreign investors’ conditions, he said.
He said most foreign investors offer loan interest rates of 18-20%, while Vietnamese investors can only afford 13-15%.
The latter have mostly mortgaged their projects to banks to raise working capital, which is unacceptable to the foreign investors, he said. There is also tension between the parties since Vietnamese firms are not transparent about their cash flows, he added.
Nguyen Cong Ai, deputy general director of KPMG Vietnam, said potential foreign buyers are just looking around and in no hurry to close deals.
Vietnamese businesses have spent a lot on their projects, and so are reluctant to sell cheap, but foreign investors, since they have cash in their pockets, bargain hard, he commented.
It seems that only in the fourth quarter this year or 2024 would there be new M&A deals, he added.
Vo Tri Thanh, director of the Institute for Brand and Competitiveness Strategy, said Vietnam needs to be flexible with its legal framework to attract big players to the M&A market.
Some conditions foreign investors set fall foul of Vietnam’s regulatory framework, which is also a reason for the deadlock, he explained.
Nguyen Anh Tuan, deputy director of the Foreign Investment Agency, said FDI in real estate has not been commensurate with the potential of the market despite growing strongly in the last two decades.
While it slumped somewhat during the Covid pandemic, it has gradually recovered, increasing by 26% last year, he said.
But he acknowledged there are many hurdles that prevent a breakthrough in real estate M&A, including the inconsistent, unclear and complicated legal system, which is not nimble either.
The complicated administrative procedures delay the implementation of projects, while planning lacks synchrony, especially in new urban areas, he noted.
He spoke about the things that need to be done to attract foreign capital into real estate like streamlining legal provisions, creating a competitive and open investment environment, and proactively addressing difficulties and problems related to policies.
Property sector faces low sales amid high interest
VNE
Sales are down at real estate companies in the South as potential homebuyers can’t afford current lending interest rates of around 13-14%.
VnExpress has found that sales over the last six months at five top southern property companies have fallen 80-90%.
Real estate consultancy DKRA Group has said that housing demand in Ho Chi Minh City and its neighboring provinces decreased sharply in the first quarter of 2023 against the fourth quarter of 2022.
One deputy general director of a property company in the city told VnExpress that even people in real need of homes are reluctant to buy due to the unaffordable borrowing rates.
He said that potential middle-class homebuyers can on average afford to pay about 40% of a home’s price, and thus have to resort to bank loans to pay the rest. But current bleak economic prospects coupled with the high interest rates have made them unwilling to do so.
“The lending interest rate of up to 14% per year is so high that many people have delayed home purchase,” said Ngo Quang Phuc, CEO of real estate firm Phu Dong Group.
Phuc proposed that commercial banks should decrease lending interest rates to assist both real estate developers and buyers, and facilitate cash flow in the economy.
But Nguyen Mac Hoai Nam, CEO of Nam Phat Consulting Service Company, said that even if lending interest rates are reduced by 1-1.5 percentage points to 12.5-13%, the cost will still be too high for many potential homebuyers.
Can Van Luc, chief economist at lender BIDV, said lending interest rates will decrease later this year.
He added that the real estate market <https://e.vnexpress.net/news/business/property/property-buyers-wait-and-watch-for-further-drop-in-prices-4588015.html> would improve in the fourth quarter, when rates are expected to drop considerably.
Luc noted that buyers of social housing will be able to borrow from a VND120 trillion ($5.08 billion) government support package at annual interest rates of 8.2%.
From now until June 30, qualifying homebuyers can borrow at the rate for a term of five years, according to the State Bank. Social project developers will be charged an annual rate of 8.7% for three years.
OIL&GAS&ENERGY<http://tuoitrenews.vn/society>&MINING
Local fuel prices surge<https://www.intellasia.net/local-fuel-prices-surge-3-1161898>
TST
Domestic fuel prices were revised up by about VND1,000 per litre today, April 11, according to an announcement jointly released by the ministries of Industry-Trade and Finance.
RON 95-III gasoline, the most popular type of gasoline in Vietnam, is priced at VND24,240 per litre, up by VND1,120, and E5 RON 92 bio-gasoline costs VND23,170 per litre, up by VND1,090.
Other fuels also marked up in price. Diesel oil now sells for VND20,140 per litre, up by VND710.
Kerosene and heavy fuel oil now sell for VND19,730 per litre, up VND700, and VND15,190, up VND720, respectively.
During this fuel price adjustment, the two ministries continued replenishing the fuel price stabilisation fund.
E5 RON 92 is subject to a surcharge of VND150 per litre, while the surcharge for RON 95-III, diesel fuel and kerosene oil remained unchanged at VND300 per litre. Heavy fuel oil is exempt from the surcharge.
Local fuel traders are allowed to tap the fuel price stabilisation fund at VND300 for each kilogram of heavy fuel oil sold to lower prices in this fuel price adjustment.
Debate drags on for power pricing status
VIR
More than 80 investors have declined to submit paperwork in order to negotiate power pricing, instead preferring to waiting for the introduction of a higher price band.
March 30 was the deadline for investors of transitional power plants in Vietnam to cooperate with Electricity of Vietnam (EVN) to reach an agreement on the final price of electricity for such renewables projects.
However, EVN’s Electricity Power Trading Company was not contacted by companies like Ninh Thuan Energy Industry JSC. “We want to be able to negotiate a 3-year pricing cycle instead of having to renegotiate every year,” said the company’s general director Le Manh Ha.
He expects that the authorities will permit “conversion prices to USD and adapt to exchange rate changes or rules on price slippage and power price inflation” in the renewable power purchase agreement (PPA) price bracket that may be published after March 30.
Elsewhere, those involved with the Nexif Energy Ben Tre wind power project were unable to finish the necessary documentation owing to difficulties with expired agreements with EVN’s member units, according to Tran Thi Thuy Duong, the project’s business development director.
“Enterprises did not purposefully withhold cooperation in order to engage in discussions,” Duong said, referencing a meeting with EVN on March 20.
It was reported that the general director of EVN agreed to accept deadline extensions, but its member units did not consent since “there was no clear directive” from the group’s head.
The energy pricing structure of the Ministry of Industry and Trade (MoIT) does not accurately represent the link with the rise in EVN’s retail power price, Duong added. According to her, if the economic internal rate of return is increased to 10 per cent, the selling price of energy will be 9.6 cents per kWh for the offshore wind generating plant.
According to the current price bracket, the average retail price of electricity has risen in comparison to the price bracket defined in 2017. According to Duong, the new average retail price of power has risen from 0.9 to 2.4 cents per kWh; however, the electricity purchase price bracket for transition projects has decreased significantly to 21 from 29 per cent in comparison to the old feed-in tariffs (FiT).
With the exception of one project for which a price was negotiated, many investors disagreed with the published price range. According to Do Van Binh, chairman of Ocean Renewable Energy JSC, this pricing range leaves enterprises unable to afford expenses, putting them in danger of bankruptcy.
A representative of Thailand’s Gulf Energy Development Company, Somchak Chutanan, concurred, stating that the low price offered by the MoIT made it impossible to undertake the project. Since the fixed price of solar power is also more competitive than that of coal and gas energy, he wishes to calculate more with the advisors, using more suitable input parameters to get better outcomes, he said.
Investors broadly believe that the MoIT and EVN have not yet agreed on a formula for determining the selling price of power. In documents issued in January and March, the MoIT urged EVN and investors in transitional power plants to reach an agreement on the development of the electricity price. Yet, neither document specified the procedure for determining the selling price of power.
At the end of 2022, EVN had deployed almost 77,800MW of power sources throughout the whole system, an increase of around 1,400MW from 2021. Last year, solar and wind energy accounted for 12.8 per cent of total system production.
According to the most recently released draft of the Power Plan Development VIII, Vietnam may utilise up to 50,000MW of capacity with an output of more than 160 billion kWh by 2030 and up to 260,000MW by 2050 if there is an appropriate support policy.
According to the Binh Thuan Wind and Solar Energy Association, 2,090MW of finished ventures are ready to produce power. During the PPA discussion, many investors demanded that they be placed into operation and compensated for investors, when signed for an extended period of time.
In the meantime, other investors are willing to pay temporary operating expenses and transfer already-existing power to the grid for half the cost of renewable energy.
Pham Nguyen Hung – Deputy director Electricity and Renewable Energy Authority, MoIT
Several investors had exerted considerable effort to get project or portion of them operational before the FiT price expired at the end of 2021. To assure fairness, however, the FiT pricing method was only used for a limited period of time.
Presently, the largest incentive mechanism is the FiT price, which is no longer accessible; instead, energy generating rates are negotiated based on the MoiT and EVN’s guiding papers. The MoIT issued Decision No.21/QD-BCT dated January 7 about the ceiling price band (excluding added value) for terrestrial solar power plants at 5 cents per kWh, energy floating solar at 6.4 cents per kWh, inland wind at 6.8 cents per kWh, and offshore wind at 7.7 cents per kWh.
EVN has been instructed to negotiate and standardise electricity generating costs in accordance with the Law on Electricity and the necessary contents of solar power plants and transitional wind power plants. The MoIT requested, based on current norms, that EVN expeditiously coordinate with investors of wind and solar power projects to advance the agreement and achieve the unification of energy pricing by the end of March in order to expeditiously bring the plants into operation and minimise waste.
Tran Dinh Nhan – General director Electricity of Vietnam
EVN has developed a draft technique for assessing the cost of electricity production for transitional renewable energy projects and requested that the MoIT review and approve it. This technique of computation is based on discounted cash flow to ensure investors pay fair expenditures; the internal rate of return cannot exceed 12 per cent, and the price falls within the specified price range.
EVN anticipates that the MoIT will soon have a paper outlining the negotiating procedure, which will serve as a guide for investors.
Currently, EVN is negotiating prices based on the MoIT-issued pricing range, which outlines the following three conditions: the customer has signed a PPA with EVN but does not fulfil the requirements for applying the electricity purchase price established; every industrial or manufacturer portion must strictly comply with the investment and construction laws; and the electricity pricing mechanism is conformed to at the time of implementation.
EVN anticipates the close collaboration of investors in producing the negotiating papers, with the hope that the transitional projects will be implemented as soon as feasible on the basis of regulatory compliance.
Bui Van Thinh – President Binh Thuan Wind and Solar Energy Association
Current regulations cause investors anxiety owing to legal flaws and investors’ lack of financial efficiency. In Circular No.01/2023/TT-BCT, the MoIT repeals three regulations mentioned in previous documents: the time limit for applying the electricity purchase price within 20 years, the terms for converting electricity purchase money into USD, and the provision on the obligation to purchase the entire output of a grid-connected wind power project at the delivery point.
The price range was established without independent assistance, and the length of the purchase price for power is uncertain. No investor has the courage to negotiate the PPA price for a full year and must do it again the following year.
If the energy purchase price bracket is implemented in a short period of time, financial institutions would be unable to determine the efficiency of capital investment, and investors would not have access to money.
Since these transitional power projects have been built for a long period of time, the investors are all eager to bargain the energy price. Investors are now awaiting a directive from the government instructing the MoIT to change the new energy generation pricing mechanism for the transition project to reflect the real circumstances.
Nguyen Thi Thanh Binh – President T&T Energy JSC
Investors want a pricing structure that reflects reality. Accordingly, we advise the MoIT to re-evaluate the price structure. Clarifying the idea to enable the mobilisation of capacity from already-built plants, developing a new pricing structure, and negotiating particular energy purchase rates based on a price band for each transitional project would take some time.
Therefore, while waiting for the new policy, the investor proposes that the MoIT and related units be directed to allow transitional projects whose construction investment has been completed to be put into operation, record the output on the grid, and be compensated for this output after completing electricity price negotiations under the new price bracket.
This method is intended to prevent the waste of societal resources, since many projects have been finished for up to two years but have yet to be placed into operation, while EVN is forced to deploy alternative power sources with greater costs than renewable energy.
The country’s current floor price for imported wind energy is 6.95 cents per kWh. Thus, it is advised that the projects be finished and grid-ready. There is no need to invest in transmission, so the floor price is calculated temporarily at 90 per cent of the price of imported power, and then the official price is determined using the retroactive and clearing concept.
LEGAL
MoF proposes VAT reduction to 8pct to boost economy<https://www.intellasia.net/mof-proposes-vat-reduction-to-8pct-to-boost-economy-1161316>
VNS
The Ministry of Finance has recently put forward a proposal to the government to bring down value-added tax (VAT) from 10 per cent to 8 per cent for a number of goods and services to boost the economy.
According to the ministry’s tax department, the government is to consider two options regarding VAT reduction.
The first one is slashing 2 per cent off the current 10 per cent VAT on a number of goods and services.
The second one is also slashing 2 per cent off the current 10 per cent VAT but excludes goods and services that were already under the effect of a previous VAT reduction as part of a government’s policy to boost economic recovery after COVID-19.
Businesses have been long asking for additional support from the government to help speed up economic recovery and to cope with recent difficulties.
The HCM City Food and Foodstuff Association (FFA) said businesses have been struggling since the end of last year with rising interest rates, poor liquidity, increased risk in the bond and stock markets and higher input and logistics prices.
In addition, orders for export have been on the decrease. According to the FFA, VAT reduction was among one of the most effective policies in supporting businesses and urged the government to extend the policy.
Similarly, the Vietnam Beverage Association (VBA) asked the government to extend the policy at least until the end of this year, saying while there has been some improvement in recent months it will take a long time for the beverage industry to fully recover after the pandemic.
The European Chamber of Commerce (EuroCham) said VAT reduction has played a key part in speeding up economic recovery, and has been a boon to businesses and consumers alike.
The chamber said it has helped with the government’s efforts in keeping inflation in check, boosting consumption and encouraging businesses to invest in expanding their operations. Consumers have also benefited from the lower VAT, which is in line with the government’s policy to aid the population post-pandemic.
Ministry of Construction proposes no time limit for condo ownership<https://www.intellasia.net/ministry-of-construction-proposes-no-time-limit-for-condo-ownership-1161908>
VNN
The Ministry of Construction has proposed not setting a time limit for condo ownership in the draft of the amended Housing Law, citing concerns over huge impact on society.
In March, the government sent the National Assembly Standing Committee the draft that included a proposal for imposing a time limit on condo ownership. However, the NA Standing Committee turned down the proposed time limit.
In a written document sent to the government on April 8, the Ministry of Construction, which is in charge of preparing the draft amendments to the law, changed its mind, proposing the government not set a time limit for condo ownership.
Explaining the about-face, the ministry said this was a sensitive issue and had yet to win a consensus in the public.
However, the Ministry of Construction said they would supplement and clarify contents relating to the time limit for condo use, requirements for demolishing condo buildings, and responsibilities of relevant parties upon the demolition and reconstruction of condo blocks. This action aims to address outstanding issues and hindrances to upgrading and re-building aging condo buildings.
Earlier, when giving feedback on the draft amendments to the Housing Law, the chair of the National Assembly Committee on Legal Affairs said that most people agreed that the proposed time limit for condo ownership should be shelved as it would have a negative impact on the property market which has become dormant due to tight credit and poor demand.
In a related development, the Ministry of Construction proposed the government maintain the regulations on allowing foreigners to buy and own homes in Vietnam as stated in the draft; however, they are not eligible to own landed houses.
The draft is to be submitted to the National Assembly for discussion in May.
