Vietnam Infrastructure Report Q4 2009

The energy and utilities sector saw a surge in new projects this past quarter, with at least two large projects breaking ground, including the 4.4GW Long Phu power complex in Soc Trang province and the 750MW Nhon Trach Power Plant No2 in Dong Nai Province. Meanwhile, financing arrangements were completed for the Van Chan hydroelectric power project in Yen Bai and the Huoi Quang hydropower plant. In addition, JAKS Resources singed a memorandum of understanding (MoU) for the first ever public-private partnership (PPP) in Vietnam's power generation sector for the Hai Duong thermal power station.

In BMI's Q409 Vietnam Infrastructure Report we have kept our forecasts steady for this quarter. New preliminary estimates from the national statistics agency indicate that construction industry value real growth for 2008 was a mere 0.4%. Given that the macroeconomic outlook is bleaker for 2009, we have revised our real growth forecasts for 2009 to near zero percent, at 0.06%. Fixed capital formation is forecast to decline from 23% in 2007 to an estimated 16% in 2008 and 2% in 2009. This is the key factor that weighs down our forecasts for 2008 and 2009.

Our medium-term view of strong growth remains unchanged. Not only did new projects break ground in early summer, but the county has significant projects in the pipeline for building and upgrading infrastructure that should sustain the industry. We believe that growth will pick up in 2010 and significantly accelerate in 2011 onwards.

Our optimism for the country is tamed by the weak regulatory environment governing long-term private sector participation in the sector. Though bits of legislation exist, there is no clear-cut set of responsibilities for ministries and authorities involved in infrastructure, making PPP ventures and procedures more opaque than they need be. This is reflected in the weak score and regional standing the country receives in BMI's Asia Pacific Infrastructure Project Finance and Business Environment Ratings.

In an announcement contradicting earlier claims, Electricity of Vietnam said that it will implement a multi-billion-dollar capital expenditure programme in 2009, despite having given up projects earlier citing financing concerns. The first quarter of 2009 saw greater penetration of the private sector in the utilities market with new multi-billion-dollar independent power projects (IPP) announced by US-based AES and Malaysia's Janakuasa. BMI has maintained that private sector participation is pivotal for addressing Vietnam's long-term power generation shortfall.