Vietnam's Independent Power Producers Sector Toward Market Liberalisation

Vietnam's Independent Power Producers Sector Toward Market Liberalisation

Further information If you would like further information on any aspect of this note please contact a person mentioned below or the person with whom you usually deal. Contact James Harris, Local Managing Partner +65 6 3022 552 james.harris@lovells.com Ken Hawkes, Partner +65 6 3022 551 ken.hawkes@lovells.com Nasir, PKM Abdul, Of Counsel +84 83 829 5100 nasir.pkmabdul@lovells.com Gregory F. Buhyoff Of Counsel +84 4 3946 1158 gregory.buhyoff@lovells.com Christian Schaefer, Senior Associate +84 83 829 5100 christian.schaefer@lovells.com This note is written as a general guide only. It should not be relied upon as a substitute for specific legal advice.

Contents AN OVERVIEW OF VIETNAM S IPP SECTOR 1 REFORM & REGULATION 1 EQUITISATION OF EVN-OWNED GENERATION CAPACITY 4 INVESTMENT REGULATION: IPPs & BOT 4 IPP INVESTMENT: PAST, PRESENT AND SHORT TERM FUTURE OUTLOOK 5 FOREIGN-OWNED IPPs: THE PHU MY BOT PROJECTS 5 OTHER REPORTED FOREIGN INVESTMENT INTEREST IN THE NEAR FUTURE 7 MOVING FORWARD 7

Lovells 1 Vietnam's IPP Sector Toward Market Liberalisation AN OVERVIEW OF VIETNAM S IPP SECTOR Background Vietnam's economic dynamism over the past two decades has given rise to a significant increase in energy demand. With average annual GDP growth of 7.5% over the past five years and increased access to electricity for consumers, generation capacity is lagging behind current industrial and residential demand. 1 Power demand is expected to rise by approximately 16% annually from 2008 to 2010 and continue to increase at 11% per year between 2011 and 2015. 2 It is no secret that the Vietnamese Government and the IPP sector have been struggling to keep up with this demand. In recent years, power shortages and tight reserve margins have been on the increase. According to the Vietnamese Government, the country experienced electricity shortages of 1.1 billion kilowatt-hours (kwh) in 2006 and approximately 6.6 billion kwh in 2007 with load-shedding during the dry season. In 2008, the situation of severe electric shortage remained. 3 It is predicted that Vietnam is also likely to suffer shortages of 10 billion kwh in 2009 and close to 7 billion kwh in 2010 (as power generation projects are expected to come on line). 4 Although the main electric utility in Vietnam, Vietnam Electricity ("EVN"), announced that power shortages will not occur in 1 According to www.powertechnology.com/projects/phumy/, only some 50% of rural inhabitants in Vietnam had access to electricity in 1995 whereas today the figure is around 90%. The Government hopes to have 95% coverage by 2010. 2 World Bank, Power Strategy: Managing Growth and Reform, 2007. 3 http://www.energytribune.com/articles.cfm?aid=92 3 4 http://www.fpts.com.vn/en/news/domestic- News/Economic-Financial- News/2007/10/3B9B10D9/ 2009 even in the dry season, concerns remain as many power projects have been delayed. 5 It is also estimated that in order to meet demand growth and to restore reserve margins to the range of between 25 to 30%, Vietnam's generating capacity will need to grow from 12,357 MW in 2006 to 25,000 MW in 2010, 41,000 MW in 2015 and 60,000 MW in 2020. 6 To meet the increase in demand, it remains crucial for Vietnam to bring its scheduled new projects online in a timely manner. It remains doubtful whether all such investments can be carried out by local players in Vietnam (EVN even recently indicated to the Government that it would have to delay the implementation of up to 13 power projects that had been assigned to it due to lack of capital). 7 Although foreign project owners and financiers are also suffering from the global recession and broader economic considerations, it is expected that Vietnam will have to rely increasingly on foreign financing and expertise in addressing the situation and foreignfinanced independent power producers ("IPPs") will be required. 8 Vietnam's present capacity consists of electricity generation from both hydro and thermal power plants, with the percentage of coal and gas-fired capacity quickly outstripping generation capacity from hydro. Nuclear power plants are also being considered and if 5 http://english.vietnamnet.vn/biz/2009/02/829956/ 6 EVN and PetroVietnam have claimed that power supplies for production in the first half of 2008 had increased by 20% from last year. 7 http://www.baomoi.com/home/kinhte/www.laodon g.com.vn/ve-13-du-an-dien-evn-tra-lai-chinhphu-can-co-co-che-keu-goi-dau-tu-nuocngoai/2071931.epi 8 Ibid., 32. Unlike in China, where surging demand in the 1990s was met with large amounts of capital invested by domestic players, it is expected that Vietnam will have to rely to a substantially higher degree on foreign investment as EVN and local companies are unable to provide or raise sufficient capital to come close to meeting rising demand. they proceed, would be expected to come on line by 2020. Renewable energy projects remain small in capacity despite increasing interest recently in wind and solar power projects. Going forward, a greater percentage of capacity is expected to come from IPPs, which are owned primarily by stateowned fuel or construction companies (such as PetroVietnam), as well as those developed through Build-Operate- Transfer ("BOT") projects a number of which are foreign-owned and financed. There are currently some foreign-owned thermal power plants such as those at Phu My and Tra Vinh, and a number of additional projects are in the pipeline (refer to the section "Project Pipeline and Future Plans" below). Out of necessity, the Vietnamese Government is actively promoting independent production of power: domestic and foreign-owned IPPs accounted for as much as 24% of installed capacity in 2006 and this is expected to grow quickly. The World Bank expects new wholly foreign-owned and financed IPPs to be the largest area of development in Vietnam's power sector over the medium term, amounting to several thousand MWs of new capacity. 9 EVN owns or is the majority shareholder of most generation capacity, the transmission system and the main distribution companies. There are also low voltage distribution networks owned by independent companies running power to rural and remote areas of the country. REFORM & REGULATION 9 Ibid., 35.

Lovells 2 The Electricity Law As a framework for reforming the power sector in Vietnam, the National Assembly of Vietnam passed the Electricity Law in November 2004. The law came into effect in July 2005 and assigns responsibility for developing and restructuring the power market and creating the infrastructure necessary to regulate it to the Ministry of Industry (now the Ministry of Industry and Trade) ("MoIT"). According to the Electricity Law, the principles behind State electricity development policy include: (i) (ii) (iii) developing the power sector based on optimal development of all sources to satisfy increasing demand; establishing and developing a power market on the principle of transparency, fairness and healthy competition, while maintaining a State monopoly in power transmission, national load dispatch, and construction and operation of certain large-scale power plants which have key socio-economic, defence and/or security roles; and applying advanced technology and science, to improve efficiency in energy consumption, to protect the environment, and promoting new and renewable energy resources. wholesale competitive market where producers compete to sell in bulk to multiple buyers and large customers. Distribution companies would become independent participants in the wholesale competitive market and would enter into contracts directly with generating companies. The third stage is intended to be a transition to a retail competitive market for power. Each market stage has two sub-phases: a pilot market, which is implemented to test and improve design, systems and rules at each stage; and a full implementation phase thereafter. The pilot market for the first stage actually started in January 2007 and, after some reserve difficulties, the generation competitive market is expected to be fully implemented in 2009. The second stage should be underway by 2014 and the third stage, transition to a retail competitive market, should be complete by 2024 (See Figure 1, below). MoIT also created a new regulator, the Electricity Regulatory Authority of Vietnam ("ERAV"), in late 2005 to perform the following functions: (i) issue and enforce electricity licences; (ii) advise the Minister of Industry and Trade on market structure and policy; The jury is still out on how ERAV is handling its regulatory role. The scope of its authority is still being determined and its enforcement powers are still being defined. Power Development Master Plan VI The Electricity Law also requires national power development master plans to be formulated for each 10-year period. The Vietnamese Government set out its most recent vision for the power sector in its Power Development Master Plan VI (the "Master Plan"), which was commissioned by the MoIT. The Master Plan covers the period from 2006 to 2015 and provides for an ambitious strategy to bring the country's electricity market in line with more liberalised competitive market standards by the early 2020s. 10 The most important aspect of the Electricity Law is its provision for a gradual three-stage transition towards full power market liberalisation. MoIT was given the task of creating a detailed "Roadmap" to implement the reforms. (iii) (iv) propose the market design and develop the necessary regulatory framework; oversee the operation of the electricity market; and The first stage, which has already commenced, is towards a market where competing generating entities sell to a wholesale "Single Buyer" (i.e. EVN). The second stage aims to create a (v) ensure balance between long and short term energy balance in Vietnam. 10 "Doing Business in Energy, Oil & Gas Industry in Vietnam," Presentation given by Nguyen Xuan Dinh, Deputy Director, Energy and Petroleum Department, Ministry of Industry and Trade (31 October 2007).

Lovells 3 Figure 1: Roadmap for Developing the Vietnam Electricity Market Generation Competitive Market (Single Buyer) Wholesale Competitive Market Retail Market 2005 2009 2014 2016 2022 2024 Retail Competitive Market Pilot Retail Market Wholesale Competitive Market Pilot Wholesale Market Generation Competitive Market (Single Buyer) ie.evn Internal Market (Single Buyer) Preparing for Single Buyer Market Preparing for Wholesale Market Preparing for Retail Market Source: MoIT Roadmap Proposal, April 2005

Lovells 4 The BOT Decree of 2007 In 2007, the Vietnam Government issued Decree 78/2007/ND-CP ( BOT Decree ) setting out new regulations concerning investment in infrastructure facilities on the basis of a build-operatetransfer, build-transfer-operate, buildtransfer and similar contractual forms (to be referred to collectively as BOTs). Under the BOT Decree, the Government expressly encourages investment in infrastructure facilities including roads, rail, air and sea ports, water and waste plants, power plants and transmission. Key provisions of the BOT Decree include: (i) (ii) (iii) (iv) specification that the preferred method of selection of an investor for a BOT contract is that of an international or domestic tender. However, the direct selection of an investor is still permitted in certain circumstances, including where a project is proposed directly by an investor and where there is only one investor who qualifies; the minimum equity requirements range from 10% to 30% of the total investment capital, depending on the amount of total investment capital; clearer provisions on step-in rights than previous legislation, although step-in rights remain subject to approval by the Government. There are various incentives for investors undertaking a BOT project. These include exemption from applicable land use fees or land rent, exemption from import duties on goods imported to implement the project, as well as significantly reduced corporate income tax and tax holidays. It may be possible for investors to negotiate additional incentives for a particular project. The BOT Decree is currently under review and the Government is in the process of issuing a number of amendments to the BOT Decree. At the same time, the Ministry of Planning and Investment has been charged with adopting implementing guidelines for the BOT Decree. Both legal documents are still under consideration although there seems to be a risk that the longer discussions concerning the amendments to the BOT Decree are delayed, the longer it will take to issue the detailed implementing regulations. EQUITISATION OF EVN-OWNED GENERATION CAPACITY Equitisation, or partial privatisation, of generation and distribution companies owned by EVN and its subsidiaries has been described as a key priority in the drive to reform. The Government is pushing to restructure state-owned monopolies such as EVN into shareholding companies separate from the Government to increase competition, investment and efficiency. Under Vietnam's equitisation scheme, EVN-owned SOEs with power assets are corporatised (i.e. converted into joint-stock companies) and their shares are subsequently sold to private investors. This will typically involve an initial public offering ("IPO") on the HCMC or Hanoi stock exchanges. Government policy dictates that EVN retain at least 51% of the shares in newly-equitised joint-stock power companies. These new joint-stock power companies then enter into power purchase agreements ("PPAs") with EVN to sell their generated power to the wholesale, and eventually the retail, electricity market. As expected, strategic generation capacity, including multipurpose hydroelectric generation facilities and any future nuclear plants, will remain fully owned by the EVN. To date, EVN has equitised several power plants and a distribution company and this process should accelerate in coming years. INVESTMENT REGULATION: IPPs & BOT Foreign investment in Vietnam's power sector can be mainly structured in one of three ways: (i) by way of a BOT contract with the MoIT which is implemented through a wholly-owned foreign enterprise, (ii) by way of a BOT contract with the MoIT which is implemented through a joint venture with a Vietnamese entity (usually including EVN, but it is also possible with a private domestic IPP), or (iii) through the purchase of shares in either an EVN subsidiary being or having been equitised or a private IPP holding power assets. Further, Vietnamese law technically permits a foreign investor to obtain an investment certificate for an IPP outside of the BOT structure (and thus without the requirement to transfer the power plant at the end of a specified term), although there has been no precedent to date of a stand-alone foreign-owned non-bot project in Vietnam. It should be noted that investments by domestic public entities in new IPPs, either as sole investors or through joint ventures with local or foreign partners, can create issues of conflict of interest, unfair competition and lack of transparency. Although SOE participation in investment has proved useful in China and elsewhere to get capacity on line quickly, there are risks that this could simultaneously harm overall investment by outsiders and create higher costs for consumers. Even EVN's participation in large joint venture IPPs will potentially create conflicts of interest as the market transitions to a wholesale competitive

Lovells 5 market. EVN's joint venture IPPs will be bidding to sell power to EVN as the offtaker, which will be awarding the PPAs. The BOT structure has been used successfully in the Phu My 2 and 3 IPPs, which are described in more detail below. This structure provides for a project company to be set up to enter into a BOT contract with the MoIT and a PPA directly with EVN. IPP INVESTMENT: PAST, PRESENT AND SHORT TERM FUTURE OUTLOOK As noted above, there are currently only two foreign-owned thermal power plants in Vietnam (at Phu My), although a number of domestic IPPs operate smaller hydro and thermal power plants. However, there are a number of projects under development. Coal-Fired Power Projects The majority of Vietnam's coal-fired plants are located in the North of the country. In Northern Vietnam, a third IPP project in BOT form has been approved and AES and Vinacomin, the main State-owned coal, minerals and mining conglomerate in Vietnam, intend to establish the 1,200 MW Mong Duong II thermal power plant at an estimated investment cost of about US$1.4 billion. This project has apparently been subject to tendering problems which are still being resolved. Located in the Southern province of Kien Giang, one of the larger domestic projects is the 4,400 MW Kien Luong coal-fired plant to be build by the local Tan Tao Group, a diversified infrastructure group. At an estimated total investment cost of US$6.7 billion, Tan Tao has already indicated that it is looking for foreign investors to participate in the project. It has also been reported that Vinacomin plans to have seven or eight new coal-fired power stations generating electricity by 2010, which will add 2,900 MW to Vietnam's generation capacity. Other coal-fired power plants are being expanded. Coal-generated power is expected to rise by 20% during the same period. Gas-Fired Power Projects Electricity generated from natural gas is bound to increase going forward for both supply and environmental reasons. Vietnam has an estimated 400 bcm of gas reserves. 11 UK gas major BP has announced plans to build a pipeline from two new gas fields, Moc Tinh and Hai Thach, to power plants onshore. BP is heavily invested in the Vietnam power sector: it was a sponsor of the Phu My 3 IPP and already operates the Nam Con Son pipeline. BP is reportedly also considering construction of two new gas-fired power stations in Vietnam. The Nhon Trach 1 gas-fired power plant is also being supplied with gas from Nam Con Son. EVN itself is pushing ahead with development of the O Mon complex with gas supply from Chevron's blocks in the South West Basin gas field. Total increased capacity is expected to be 2700 MW. PetroVietnam has also invested heavily in the Ca Mau power project, which includes two 720 MW gas-fired combined-cycle turbines supplied with gas from the South West Basin. FOREIGN-OWNED IPPs: THE PHU MY BOT PROJECTS Participants in new IPPs in Vietnam can look to the Phu My projects for 11 Estimate is found in Business Monitor International, Vietnam Oil & Gas Report Q2 2008 (February 2008) 34. guidance and a foundation of experience. Phu My is the name of the village in Ba Ria-Vung Tau Province where the Phu My power plant network is located. 12 Two of the Phu My power projects are foreign-owned IPPs structured as BOT projects: Phu My 2.2 and Phu My 3; Duyen Hai 2, one of the recently approved foreign projects, is intended to be implemented under the build-operate ( BO ) form. Phu My 2.2 Phu My 2.2 is a 715 MW power plant developed through a 20-year BOT contract between the project company Mekong Energy Company ("MECO") and MoIT. The principle sponsor is Electricité de France (EDF) and its consortium includes Sumitomo and the Tokyo Electric Power Company. The project required a capital investment of US$410 million. The original debt package was for US$340 million with JBIC, Proparco and ADB providing 15- year direct loans of US$150 million, US$40 million and US$50 million respectively. The financing process, from due diligence to signing, was completed in just over 12 months. The gas-fired combined-cycle generation facility's fuel is supplied by PetroVietnam from the Nam Con Son pipeline linking the Lan Tay and Lan Do undersea gas fields just off the southeast coast. Commercial banks, including lead arrangers ANZ Investment Bank, SMBC and Societe Generale, chipped in US$100 million, with IDA and ADB providing US$75 million and US$25 million political risk guarantees respectively. ADB entered into a backto-back arrangement for Sovereign Risk Insurance to cover its guarantee. There 12 Phu My is approximately 80 km south of Ho Chi Minh City.

Lovells 6 was also an Assignment Agreement with two other participating banks, Natexis Bank and Fortis Bank, agreeing to take a combined portion of US$23 million of the debt from ANZ and SMBC. The Phu My 2.2 project was the first BOT project in Vietnam to reach financial close. The project also achieved notoriety for being the first financing in Vietnam with loan tenors of up to 16 years, and for having the first limited recourse financing package of such a significant size. Phu My 3 The more recent of the two foreignowned and financed BOT projects is the US$412 million Phu My 3 BOT Project, which started commercial operation in March 2004 (the first IPP to operate in Vietnam). Project sponsors include a consortium of Kyuden International Corporation and Sojitz (formerly Nissho Iwai Corporation) for 33.3%, BP Holdings BV ("BP") for 33.3%, and SembCorp Utilities Pte Ltd. for 33.3%, using a 3:1 debt to equity ratio. The Phu My 3 lead arrangers were the Bank of Tokyo-Mitsubishi Ltd, Credit Lyonnais, Credit Agricole Indosuez, along with Mizuho and Fortis Bank S.A./N.V. acting as structuring banks. The commercial banks' facility was for US$135 million for 13.5 years while JBIC and ADB also provided 13.5-year institutional facilities of US$90 million and US$45 million respectively. Nippon Export and Investment Insurance, ADB and MIGA (the World Bank's insurance arm) provided country risk coverage for the commercial lenders for US$95 million, US$32 million, and US$43 million respectively. Construction began in December 2001. Siemens AG was the EPC contractor for the turnkey project and also executed a 12-year maintenance contract for turbines and generators with the project company, Phu My 3 BOT Power Company Ltd. Phu My 3's power plant provides southern Vietnam with 716,800 kw of electricity. Interestingly, Phu My 3's sponsors retained the project's construction and delivery risks. It will be interesting to see if this aspect will repeat itself in future IPP projects, such as Nghi Son 2. The PPA between the project company and EVN has an offtake term of 20 years while the BOT contract between the Ministry of Industry (now MoIT) and the project company is for 23 years. Direct agreements with the State participants followed a very structured format and effectively bound the Vietnamese parties, which included State Bank, EVN, Vietcombank and the Provincial Peoples' Committee, to a single agreement. The Vietnamese Government provided a foreign law-governed sovereign guarantee to ensure the financing went forward for Phu My 3. Since the Phu My 3 Project, however, the Government has been reluctant to issue further guarantees apart from those covering only a small portion of the investment risk. Investors would surely like to see a similar guarantee for the upcoming Nghi Son 2 coal-fired project, which is described in greater detail below. Together with the Government's reform process and liberalisation of the electricity market, the Phu My projects potentially serve as benchmarks and contribute to a more attractive investment environment in Vietnam's power sector. Based on the Phu My experience, the Vietnamese Government, international commercial banks and developers will certainly be much more comfortable with the use of similar BOT structures for foreign investments in IPPs moving forward. It should also be noted that Phu My 3 was entirely offshore-financed, whereas future projects appear more likely to include a domestic component. The legal regime in place for taking security in Vietnam has since been upgraded and some international banks now have been approved for onshore banking licences. Mortgaging of land use rights by a foreign invested enterprise to a foreign lender is permitted where the mortgage is made to the lender's branch in Vietnam (for credit institutions only), but is not permitted where the foreign lender does not have a foreign bank branch in Vietnam. Duyen Hai 2 Duyen Hai 2 comprises of the secondphase project of the Duyen Hai Power Generation Complex, located in Duyen Hai District, Tra Vinh province and invested by Malaysia s Teknik Janakuasa Sdn Bhd with required investment capital of US$1.5 billion. The project has been approved by the Government to be invested in the form of BO with ERAV as the Vietnamese counterparty to the concession agreement. Duyen Hai 2 power plant is intended to have capacity of 1200 MW, although the project is not anticipated to become operational until 2015. Other Foreign-Invested Power Projects Vinh Tan 1 project, a part of the Vinh Tan thermo power centre project, is expected to be built by this November in Vinh Tan commune, Tuy Phong District in the central province of Binh Thuan. The Vinh Tan 1 thermo power plant, capitalised at US$1.9 billion and is coinvested by China-based Southern Group and the Vietnam National Coal and Mineral Industries Group (Vinacomin), is expected to be in operation by 2010-2011. 13 13 http://www.intellasia.net/news/articles/infra_resour ces/111260979.shtml.

Lovells 7 Vinh Tan 3 project, a power project with a capacity of 2 x 1000 MW, will be invested by a consortium of EVN, One Energy, Pacific Corporation with the investment capital of US$ 2.6 billion. The investors in Vinh Tan 3 project are completing the investment procedures to conduct the project. Hai Duong 2 project, the project has been announced to be invested by a Malaysia Corporation, Jaks Resources Bhd, under the BOT form. The MOIT will coordinate with other relevant Ministries and authorities to negotiate the relevant project documents with Jaks Resources Bhd. 14 OTHER REPORTED FOREIGN INVESTMENT INTEREST IN THE NEAR FUTURE In line with the Electricity Law and the Master Plan, the Government appears to be pursuing an aggressive IPP development strategy to get more capacity in the system as quickly as possible. 15 Given the perceived opportunities for foreign IPPs, Vietnam has attracted substantial attention from industry players in recent years. It has been reported that Sumitomo Corporation is planning to build a 2,640 MW plant in Khanh Hoa Province at a total estimated cost of US$4 billion and that SembCorp Utilities intends to invest US$500 million to develop a 700 MW plant in Ho Chi Minh City. Other industry players, including EDF, International Power, Hong Kong Electric and others, all appear to be looking at the market. Despite keen interest, the main issue to date has been that the MoIT has so far been reluctant to license any new wholly foreign-owned IPPs to operate in Vietnam and has been slow in implementing the 14 Official Letter No 2831/VPCP-KTN (Government Office, May 5, 2009). 15 Power Strategy, World Bank, 34. seemingly aggressive strategy contemplated under the Master Plan. This is despite the fact that a number of projects have received support at the local level. Mong Duong 2 Nevertheless, US-based AES Corporation (Arlington, Virginia) appears to be nearing finalisation of its discussions with the Government for its long-awaited 1,200-MW coal-fired power plant in Mong Duong in northern Vietnam's Quang Ninh province. It has been reported that the BOT agreement has, in essence, been finalised and is awaiting approval by the relevant ministries. The project is to be developed in the form of a joint venture with state-owned coal producer Vinacomin (90/10) and might be approved as early as the second quarter of 2009. Nghi Son 2 In a sign of thawing in the licensing program, the Government has recently approved a shortlist of bidders for the 2x600 MW coal-fired Nghi Son 2 BOT Project, which is to be located at Nghi Son, Thanh Hoa Province in North Central Vietnam. It has been reported that the project is to be implemented on a BOT basis pursuant to a 20-year PPA with EVN. The shortlist of bidders includes the following companies and consortia: China Resources Power; China Power International (CPI), Vinacomin and Lilama; Datang Power International; EDF, Sumitomo Corp and China Guodian Group; International Power; Marubeni, Korea Electric Power Co and J-Power; One Energy and Electricity Generating Company (Egco) of Thailand; and Suez Energy and Mitsui & Co. Recently, the RFP containing the proposed project documents has been released to a shortlist of bidders for their preparation. It will be interesting to see whether the risk allocation structure will be similar to the Phu My financings. Of particular interest will be how the MoIT proposes to deal with sovereign risk, for instance. In Phu My 3, the Government provided a comprehensive government guarantee to the financiers of the project. Such an allencompassing guarantee may not be forthcoming for Nghi Son 2. As indicated by the Minister of Industry and Trade, the MoIT intends to cooperate closely with IFC and World Bank to develop certain standard documentation for the bidding procedures of Vietnam s proposed international tender IPP projects which would include standard form tender invitations, BOT contracts and so forth. 16 MOVING FORWARD This is a critical time for Vietnam's development. Rapid economic growth is expected to resume once the global economy recovers. Sufficient electricity generating capacity and a transparent, efficient and competitive power market are required to support this growth. As reform progresses and Vietnam struggles to meet demand, several related outcomes are likely in the market: (i) Pressure will grow on EVN to truly divest itself of the equitised power companies so that the market will be perceived to be truly competitive. As long as it maintains majority control of power generation companies, there will be perceived conflicts of interest in any competitive contracting situations. (ii) If the first stage of market transformation outlined in the 16 As announced by the Minister of Industry and Trade in a meeting with European Enterprises in Vietnam on 27 April 2009.

Lovells 8 Roadmap is successful, foreign investment in thermal powered IPPs should accelerate leaving EVN to focus more of its resources on hydro and nuclear electricity generation. Foreign investment should also likely increase as the market can now look to the Phu My BOT projects as a solid precedent which adds to investor and lender comfort and confidence in the Vietnam independent power sector. Once the Mong Duong 2 and Nghi Son 2 Projects come online, these projects will hopefully also serve to bolster the confidence of global infrastructure investors. (iii) (iv) In order for urgently needed foreign investment in the Vietnam power sector to grow at the required pace, the selection and establishment procedures for foreign-invested IPPs will have to be shortened and streamlined. Vietnam will continue to diversify its fuel supply for generating power, as it draws from thermal, hydro and nuclear power generation for electricity in the long term. Clean energy and renewable sources of power should also be added to the mix. The regulatory framework appears to be largely in place for successful reform of Vietnam's power sector. However, continued political will, easing of the bureaucratic hurdles to foreign investment, and appropriate progress towards greater transparency, competition and privatisation of SOEs will be necessary to achieve Vietnam's ambitious objectives for meeting its surging power demands.

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