"Vietnam Power Report Q1 2014" Published

Whilst revisions in historical data have prompted some numerical changes in our forecasts, our overall outlook for Vietnam's power sector remains unchanged. We also hold a relatively constructive view for the expansion of the country's power infrastructure, on the back of the official launch of Vietnam's competitive generation market. Nonetheless, we reiterate that low tariffs, rising dependence on imported fuel (namely coal) and lack of regulatory clarity remain key downside risks.

Our relatively bullish long-term outlook for Vietnam's power sector, predicated on our view that the country will see strong and prolonged economic growth, remains fully in place, and revisions in our historical data series and the availability of new information have actually prompted a further upwards revision of our short and long-term forecasts across the power sector.

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Hikes in power generating capacity and significant improvements in the transmission and distribution (T&D) segment are a recognised necessity, with Vietnam's Master Plan VII predicting that the country will need 75,000MW of installed capacity by 2020. In addition, the launch of Vietnam's competitive generation market (CGM) on July 1 2012 is certainly a step in the right direction, with an increasing number of international actors having showed interests in the market (as illustrated by the projects in the pipeline for development after 2015).

Additionally, we believe that the development of the Vinh Tan 1 plant underscores the growing attractiveness of Vietnam's thermal generation sector. We have already witnessed a flurry of activity in private-sector activity over the past year, which we attribute to the introduction of the competitive generation market and the successive increases in the electricity tariff.

That said, a number of pertinent risks remain prominent, leading us to believe that a discrepancy will certainly emerge between planned and realised capacity. Most notably:

* Regulatory uncertainty and delays remain significant. For instance, the cancellations of nine small- to medium-capacity hydropower plants in October 2012 highlighted an increasing lack of opportunities for small-scale hydropower generation, due to growing environmental concerns. However, we believe that the cancellations also displayed a disparity between provincial and federal level planning.
* Low tariffs and dependence on imported fuel (namely coal) as a key impediment to the power sector's growth potential, and news that theft of electricity is on the rise is worrying.

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