What Vietnam’s 20,000 GWh power generation teaches Nigeria

Like Nigeria’s situation in the 1990s, Vietnam’s per generation capacity was only around 8,700 megawatts (MW) in 1990. 17 years after a major policy rethink, Vietnam’s power sector has risen to around 48,000MW while Nigeria is still struggling with a long list of excuses and billion-dollar losses to show for it.

Vietnam, a country with a population less than half of Nigeria generates over 20,000 GWh due to a major policy rethink that revolutionised its power sector. This resulted in the commercialisation and introduction of independent power producers, with a commitment to renewable sources where possible.

Nigeria on the other hand has nothing but an additional 800 megawatts despite billion dollar investments and an eight-year-old privatisation exercise.

Unlike Nigeria’s power sector which involved changing the structure of the sector to separate generation, distribution and transmission units, Vietnam was able to effectively create investment competition in its electricity market, a development that allowed the Southeast Asian country to attract needed investments to boost generation.

Vietnam adopted a major policy turnaround in 2005 that provided the framework to develop a competitive power market, unbundle Electricity Vietnam, set prices that better reflect costs, promote private investment, and establish a regulatory authority.

“Vietnam’s lesson story shows Nigeria’s state-centric institutions can develop the power sector with top-level government commitment, highly-qualified staff, and consensus among sector institutions,” Pedro Omontuemhen, partner and energy, utilities and resources leader at PwC Nigeria said.

Vietnam’s installed generation capacity grew from 11,578MW in 2005 to 24,500MW in 2016 with transmission and distribution losses reducing by an annual average of 0.6percent in the same period.

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“A key strategy used in the initial stages of the electricity expansion program was the deployment of rural electrification to commercial and productive sectors of the economy,” says FBNQuest, a merchant banking and asset management group in Sub-Saharan Africa

It added, “Given the importance of rice exports to the country, the earliest electrification programmes focused on connecting rice-producing regions of the country, thereby industrialising the rice production process.”

Findings showed Vietnamese electricity laws require national power development master plans to be adopted every ten-year period. These electricity Laws formalise the shift of the electricity sector to a market economy and diversify forms of ownership and management of electricity generation, wholesale and retail.

According to Vietnam Electricity (EVN), a state-owned enterprise, the objective of the electricity law is to encourage the participation of all economic entities in electricity development, development of electricity sources using renewable energy, development of smart power grid and establishing grid links with neighbouring countries.

In addition, current Vietnamese regulations also provide special incentives for solar energy projects, which are entitled to an import duty exemption.

For instance, a certain Act 2068 provides incentives such as zero import duty for fixed assets of a renewable energy project, corporate income tax exemption or reduction, land rental exemption or reduction and government funding for research and technology of pilot projects.

“Vietnam’s policies are to liberalise the electricity market and encourage foreign investors to invest in the market,” Omontuemhen explained.

Data from EVN showed most foreign investment takes the form of build-operate-transfer (BOT) projects, where a foreign investor builds a power generation project, operates it for a certain period of time to gain profits, and then transfers it to the Vietnamese Government.

It also showed as of February 2020, there were 19 BOT thermal power plant projects, with a total capacity of about 27,000 MW.

According to Vietnam’s Ministry of Industry and Trade, the government has adopted various policies to encourage the development of nuclear power.

Specifically, nuclear power stations were included in the national power development strategy for the period 2012 to 2020, according to which five nuclear power stations will be put into operation from 2020 to 2030.

While Vietnam’s forward-thinking policies seem to be yielding more fruits, Nigeria’s policy formation and economic choices leave less to be desired.

BusinessDay analysis shows that although Nigeria’s transmission capacity has increased by 20 percent to an average of 4,200mw in the last eight years, Nigeria’s population has soared by 57 percent in the last eight years from 131 million people to 206, according to the latest World Bank estimates.

Despite prevailing challenges, the Central Bank of Nigeria (CBN) has in the past seven years spent over N2 trillion to keep the nation’s power sector from collapse.

The interventions include Power and Aviation Intervention Fund (PAIF), hovering at about N300 billion, Nigerian Electricity Market Stabilisation Facility (NEMSF) at about N213 billion, N140 billion Solar Connection Intervention Facility, over N600 billion tariff shortfall interventions and another N120 billion intervention designed for mass metering, among others.

“Despite this level of intervention, the generating companies had estimated receivables of over N400 billion in 2020 alone. While the interventions have been central in ensuring the profitability of operators along the industry’s value chain, they remain insufficient and unsustainable,” noted Augusto & Co.

The International Monetary Fund estimates that Nigeria’s economy loses about $29 billion a year because of electricity supply problems. Ninety percent of the industry provides its own power. The Manufacturers Association of Nigeria says that roughly 40 percent of the cost of production goes to power.