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Private Capital to Help Meet Vietnam's Energy Needs

Last Updated: May 2007
IDA at Work: Attracting Private Capital to Help Meet Vietnam's Energy Needs


With demand for electricity in Vietnam growing at an annual average of 13-15 percent over the period of 1995-2000, the country needed to increase its electricity supplies to sustain its economic growth. In 2002, half of Vietnam's electric capacity was coming from hydropower plants, which is unreliable during times of drought. The government decided to promote private sector participation as part of its strategy to address the need for increased power generation capacity.


- The Phu My complex consists of five gas-fired electricity generation plants, 70km southeast of Ho Chi Minh City which in time will produce up to 4,700 gigawatt hours of power per year.
- Following extensive efforts on energy reform in Vietnam through numerous projects aimed at delivering affordable energy to rural areas, as well as upgrading existing capacity to meet the growing demands of urban areas, IDA helped finance the first phase of the Phu My 2 (PM2) power project. Another part of the World Bank Group, the Multilateral Investment Guarantee Agency (MIGA) provided risk guarantees to Singaporean and French investors. As one of the country's first power Build-Operate-Transfer project, PM3 is creating a roadmap for others on the responsibilities and sequencing of plant transfer to locals. The project is also a good model for public-private partnership.


By providing an estimated 8-10 percent of country's electricity supply, this power project is helping fuel economic growth.

- Increased electricity means a more steady power supply for residents and a key resource for textile and other industries to generate GDP growth and create jobs.
- The project is having positive development effects for the local community, generating significant employment (about 2,000 people on site at the peak of construction) and tax revenues (US$8.8 million in 2005).
- PM3's involvement with the Le Loi School–where it has provided books, computers, bathrooms, scholarships, health checks, etc.–is considered a model for others. PM3 is now working with other multinationals to pool resources and extend their social outreach.
- PM3 also recruited and trained about 50 Vietnamese engineers who will be responsible for running the plant. Most jobs will be turned over to local staff by 2008, thus ensuring responsibility and knowledge transfers.


- Under its Power Development Project, IDA helped finance the first phase of the Phu My 2 as a public project and financed technical assistance for the development of the second phase. IDA also provided its first Partial Risk Guarantee (PRG) for Vietnam in support of the Phu My 2 (Phase 2). This project was the first private infrastructure Build-Operate-Transfer project launched under an internationally competitive bid in Vietnam, and set the framework for future private sector infrastructure developments in the country.
- In addition to its specific support for the Phu My power complex, IDA has played a larger role supporting Vietnam's burgeoning economy. It has focused extensively on energy reform and helped improve Vietnam's transportation infrastructure, therby ensuring timely delivery of fuel and access to transmission facilities for repair and maintenance.


In 2003, MIGA issued US$43.2 million in guarantees to SembCorp Utilities Pte. Ltd. of Singapore to cover its US$38 million equity investment in Phu My 3. The 15-year policy provided coverage against the risks of transfer restriction, expropriation and breach of contract. MIGA's involvement helped the investor obtain financing at competitive rates, while speeding up project implementation. In 2004, MIGA issued a guarantee of US$15 million to Crédit Lyonnais, S.A. of France for its swap agreements related to the financing of Phu My 3 BOT Power Company Ltd. The swap agreements permit the project to pay a fixed rate of interest on loans rather than a floating rate, which presents financial risk.

Next Steps

While energy supply in Vietnam has grown substantially as a result of World Bank Group programs, meeting projected demand for energy continues to be a vital component of Vietnam's development strategy. Currently, IDA is developing several energy projects in the country, including a renewable energy facility, a rural power distribution initiative, and a public private partnership energy generation project. In aggregate, approved IDA support for these critical projects could total US$420 million and will contribute to the estimated US$14 billion in new energy investments that Vietnam requires by 2010 to meet its projected energy demand.

Learn More

Power Development Project (1996-1999)
Project Documents  |  MIGA Offsets Lenders' Risk Concerns in Vietnam Power Project (feature story) 

For more information, please visit the Projects website.

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