Risks of Vietnam Energy Market Related to the Project

2) Retail prices are controlled by the ceiling price set by the Government, averaging 1058 VND/kWh or 5.7 cents/kWh 5 , which is currently lower than the proposed price of new IPPs when selling to EVN and lower than the average electricity price of ASEAN countries (Bruney 6.2; Cambodia 17; Indonesia 6.77; Singapore 13.07; Thailand 8.5 6 ).

c) About power source structure

Electricity output is mainly produced from hydroelectric, thermal and imported sources. According to the plan until 2020, hydroelectricity accounts for 28.5%; oil and gas thermal power accounts for 26.7%; coal thermal power accounts for 30.2%; and imports 5.8% 7 .

d) Coal demand for the electricity industry

With the increasing demand for coal for electricity production, expected to increase many times in 2020 compared to present, according to forecasts, domestic coal sources for electricity projects can only be sufficient until 2015, coal-fired thermal power will face a shortage of domestic coal and must compensate with imported sources at higher prices. Therefore, the trend of using CFB technology may gradually increase, increasing competition in the low-quality coal market.

e) Industry value chain

The electricity industry has three main stages: electricity production, transmission and distribution to consumers. In this value chain, EVN accounts for nearly 80% of the electricity production market share, monopolizes the electricity transmission market share and electricity distribution market share. The total power generation capacity of the entire industry in 2008 was 14,000 MW, of which EVN accounts for about 71% of the entire system, the remaining 29% belongs to independent power generation units 8 .

1.2 Growth potential

a) Favorable factors

6 Ministry of Industry and Trade (2010). Circular No. 08/2010/TT-BTC regulating electricity prices in 2010 and implementation instructions.

7 http://vietnamnet.vn/kinhte/201002/Tang-toi-68-gia-dien-van-dung-truoc-ap-luc-tang-manh-896141/. Vietnamese Newspaper

Nam Net.

8 Prime Minister (2007). Decision No. 110/2007/QD-TTg on approving the Power Development Plan.

National period 2006-2015 with a vision to 2025.

9 BMI (Q1-2009). Vietnam Power Report 2007-2013 .

- High and stable industry growth rate

- Electricity purchase and sale prices are expected to continue to increase in the coming years according to the competitive electricity market roadmap. The average retail electricity price in 2010 was 1058 VND/kWh, equivalent to 5.7 US cents/kWh.

- Continue to receive investment attention from the Government

b) Difficulty

- Continue to be subject to government regulation, especially electricity prices. BOT power projects invested by foreign capital are currently offering prices of around 7-8 cents/kWh9 while the average price EVN sells to consumers is 5.7 cents/kWh.

- Investing in electricity production requires large capital and a long payback period in the context of input prices containing many fluctuations with an upward trend.

- The rate of load increase is faster than the rate of power increase.

1.3 Risks of the electricity industry

Based on the current status of the power industry and previous studies, the main risks of the project are summarized in the following table.

Table 1.1 Risks of Vietnam's energy market related to the project

Risk

Ability or means to help

risk reduction

High expectations of increased electricity demand not realized

- Historical data shows that even during the regional financial crisis, the growth rate of electricity demand remained high.

- The need to increase capacity to meet peak system loads

by non-hydroelectric sources

Commitments on electricity market reform not implemented on schedule

affect electricity prices

- The Government has clearly recognized the importance of increasing electricity prices and made specific commitments.

- Use the prestige of the sponsor NHPTVN in dialogue with

EVN.

Maybe you are interested!

10 http://www.baodautu.vn/portal/public/vir/. Investment Newspaper - Ministry of Planning and Investment

Construction time is delayed

long and cost overrun

- Accelerate the process of DBGPMB.

- Research to reduce investment rate to the average value of CFB technology type

Capital structure is too biased towards the use of leverage

debt makes it difficult to borrow money

- Demonstrate project effectiveness to lenders.

- Consider changing capital structure (increasing equity)

- Consider the channel of mobilization through bond issuance

EVN's ability to purchase electricity is not as expected, reducing power generation time.

Inflation affects the ability to

EVN's solvency

- Research to reduce investment rate to average level

- Seeking long-term power purchase agreement PPA

- EVN's financial and management capacity has increased over time, along with capital funding for EVN from the government.

Coal fuel supply is insufficient or the price is too high compared to the capacity

profitable

- Looking for long term coal purchase agreement.

- Support or participate in investing in coal mining activities in

local

Unable to convert revenue to USD

pay debts

- Expectations on the ability of the central bank to manage debt service and foreign exchange reserves.

- Look for informal channels that support conversion

Load factor does not decrease, increasing pressure on capacity

power supply

- Transparency in electricity price policy and level of trust in implementing the roadmap for building a competitive electricity market

painting.

2. 1 Appendix 2 Project parameter table

Parameter	Unit	Value
I	Project Time
1	Construction time	year	4
2	Operating time	year	25
3	Project Time	year	29
II	Project scale
1	Capacity

Installed capacity (phase 1)	MW	50
Power factor	proportion	0.85
Number of units in phase 1		1
Configuration: 1 CFB boiler + 1 turbine + 1 generator
2	Operating time
	Number of hours of operation per year	hours/year	6,500
	Average number of operating days per year	day/year	271
	Usage factor (load factor)	%	74%
3	Power output
	Generator power factor	%	0.9
	Refined capacity	MW/h	45
	Nominal output	GWh/year	325
	Average annual electricity output	GWh/year	292.5
	Self-consumption electricity rate	%	9.8%
	Self-consumption electricity	GWh/year	28.72
	Commercial electricity	GWh/year	263.78
III	Investment capital
1	Macro information
	USD Inflation (Applying Risk Analysis)	%	2.50%
	VND Inflation (Applying Risk Analysis)	%	5.50%
	Official exchange rate AOR	VND/USD	18,500
	Economic Exchange Rate (EOR)	VND/USD	19,334
2	Land use	ha	17
	Main factory	ha	15.9
	Pumping station	ha	0.1
	Housing for employees and resettlement	ha	1
3	Total investment (before VAT)	USD	60,991,000
3.1	Construction costs	USD	20,414,657
	Main project (construction part)	USD	15,045,519
	Main project (VLC part)	USD	4,992,883
	Auxiliary works for construction	USD	75,120
	Temporary house (for living and construction management)	USD	201,135
3.2	Equipment costs	USD	32,232,564
	Equipment procurement summary	USD	31,237,888
	Main equipment	USD	30,856,718
	Equipment for electrical and water construction	USD	31,170
	Replacement and maintenance equipment	USD	350,000
	Total cost of equipment installation	USD	946,076
	Training, technology transfer	USD	48,600
3.3	Project management costs	USD	607.131
3.4	Consulting fees	USD	959,677
3.5	Other costs	USD	3,424,463
	Interest during construction	USD	2,091,120
	Initial working capital	USD	400,000
	Production preparation costs	USD	181,818
	Remaining amounts	USD	751,524

3.6

Provision for increased actual costs	USD	3,452,309
3.7	Investment rate	USD/kw	1,220
3.8	Total investment in fixed asset formation	USD	56,000,000
5	Investment financing
5.1	Equity (USD)
	Proportion	%	20%
	Cost of equity	%	7.5%
5.2	Borrowing capital from Vietnam Development Bank
	Proportion	%	80%
	Nominal interest rate	%	8%
	Loan term (including 2 years of construction)	year	15
	Grace period	year	3
	Principal repayment period	year	10
6	Depreciation (straight-line method)
	Construction works	year	20
	Device	year	20
IV	Operating costs
1	Input fuel
1.1	Charcoal
	Bran 6b Quang Ninh
	Proportion	%	70%
	Consumption quantity	tons/year	133,000
	Bo Ha Coal
	Proportion	%	30%
	Consumption quantity	tons/year	57,000
	Average coal consumption	Kg/KWh	0.58
	Total consumption	tons/year	190,000
	Average financial coal price for the project	USD/ton	23.70
1.2	FO oil
	Oil consumption rate	Kg/KWh	0.0015
	Annual oil consumption	tons/year	488
	FO oil price	USD/ton	660
1.3	Limestone consumption
	Annual consumption	tons/year	7500
	Limestone price (according to IPC estimate)	USD/ton	6.0
2	O&M cost (2.5% XL+TB)		2.50%
	Salary costs	%/BRAISED	50%
	Maintenance costs, small maintenance costs	%/BRAISED	50%
3	Land rental costs	USD/year	90,000
4	Corporate income tax
	First four years of operation	4	0.0%
	The next nine years	9	12.5%
	The following years		25.0%
	Maximum number of years to carry forward losses		2
V	Working capital
1	Accounts receivable:

Electricity receivables/annual electricity sales revenue	%	16%
Receivables from coal ash sales/annual ash sales revenue	%	16%
2	Payables:
	Fuel Input/Total Annual Fuel Cost	%	8%
	Operating Expenses/Total Annual Operating Expenses	%	8%

3. 2 Appendix F.1 Financial analysis from the perspective of total investment

Fiscal year

Cash in			Cash out							Project net cash flow
Net Revenue	Change AR	Interest income send	Fuel costs	BRAISED	Rent land	Corporate Income Tax	Change AP	Change CB	Expense invest	Project net cash flow
2010	0	-	-	-	-	-	-	-	-	-	893,000	(893,000)
2011	1	-	-	-	-	-	-	-	-	-	4,101,000	(4,101,000)
2012	2	-	-	-	-	-	-	-	-	-	29,056,000	(29,056,000)
2013	3	-	-	-	-	-	-	-	-	4,312,176	26,941,000	(31,253,176)
2014	4	14,700,178	(2,352,029)	172,487	4,870,581	1,316,181	90,000	-	(494,941)	-	-	6,738,816
2015	5	14,700,178	-	172,487	4,870,581	1,316,181	90,000	-	-	-	-	8,595,904
2016	6	14,700,178	-	172,487	4,870,581	1,316,181	90,000	-	-	4,890,220	-	3,705,684
2017	7	14,700,178	-	368,096	4,870,581	1,316,181	90,000	-	-	(391,218)	-	9,182,730
2018	8	14,700,178	-	352,447	4,870,581	1,316,181	90,000	172,464	-	(391,218)	-	8,994,618
2019	9	14,700,178	-	336,798	4,870,581	1,316,181	90,000	222,344	-	(391,218)	-	8,929,089
2020	10	14,700,178	-	321,150	4,870,581	1,316,181	90,000	272,224	-	(391,218)	-	8,863,560
2021	11	14,700,178	-	305.501	4,870,581	1,316,181	90,000	322.104	-	(391,218)	-	8,798,031
2022	12	14,700,178	-	289,852	4,870,581	1,316,181	90,000	371,985	-	(391,218)	-	8,732,502
2023	13	14,700,178	-	274,204	4,870,581	1,316,181	90,000	421,865	-	(391,218)	-	8,666,973
2024	14	14,700,178	-	258,555	4,870,581	1,316,181	90,000	529,133	-	(391,218)	-	8,544,056
2025	15	14,700,178	-	242,906	4,870,581	1,316,181	90,000	579,013	-	(391,218)	-	8,478,527
2026	16	14,700,178	-	227,258	4,870,581	1,316,181	90,000	628,893	-	(5,281,438)	-	13,303,219
2027	17	14,700,178	-	16,000	4,870,581	1,316,181	90,000	1,381,998	-	-	-	7,057,419
2028	18	14,700,178	-	16,000	4,870,581	1,316,181	90,000	1,381,998	-	-	-	7,057,419
2029	19	14,700,178	-	16,000	4,870,581	1,316,181	90,000	1,381,998	-	-	-	7,057,419
2030	20	14,700,178	-	16,000	4,870,581	1,316,181	90,000	1,381,998	-	-	-	7,057,419
2031	21	14,700,178	-	16,000	4,870,581	1,316,181	90,000	1,381,998	-	-	-	7,057,419
2032	22	14,700,178	-	16,000	4,870,581	1,316,181	90,000	1,381,998	-	-	-	7,057,419

2033

23	14,700,178	-	16,000	4,870,581	1,316,181	90,000	1,381,998	-	-	-	7,057,419
2034	24	14,700,178	-	16,000	4,870,581	1,316,181	90,000	2,081,998	-	-	-	6,357,419
2035	25	14,700,178	-	16,000	4,870,581	1,316,181	90,000	2,081,998	-	-	-	6,357,419
2036	26	14,700,178	-	16,000	4,870,581	1,316,181	90,000	2,081,998	-	-	-	6,357,419
2037	27	14,700,178	-	16,000	4,870,581	1,316,181	90,000	2,081,998	-	-	-	6,357,419
2038	28	14,700,178	-	16,000	4,870,581	1,316,181	90,000	2,081,998	-	(400,000)	-	6,757,419
2039	29	-	2,352,029	-				-	494,941	-	-	1,857,088

Results of financial indicators from the perspective of total investment

Target	Symbol	Unit of measure	Result
1	Discount factor	Wacc1	%	7.88%
2	Internal rate of return	IRR	%	10.43%
3	Net present value	NPV(TIP)	USD	13,500,457
4	Benefit/cost ratio	B/C	Ratio	1.12
5	Discounted payback period	T hv	Year	13
6	Payback period in year	t hv	Year	2026
7	Average production cost	P	cents/kWh	3.53
8	Debt service safety ratio	DSCR	Ratio	1.68

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