“Vietnam’s Dilemma in Dealing with Laos’ Mekong Hydropower Dams” by Le Hong Hiep

2020/1, 7 January 2020

On 4 January 2020, during the 42nd meeting of the Vietnam – Laos Inter-Governmental Committee, Electricity Vietnam (EVN), Vietnam’s state power utility, signed five contracts to purchase from Laos’ Phongsubthavy Group and Chealun Sekong Group 1.5 billion kWh of electricity a  year for two years starting in 2021. The deal, while illustrating the Lao government’s vision of turning the country into “the battery of Southeast Asia”, underlines Vietnam’s energy security challenges as well as its dilemma in dealing with Laos’ plans to build more hydropower dams along the Mekong River.
Vietnam will face increasing power shortage in coming years, estimated to reach 3.7 billion kWh in 2021 and nearly 10 billion kWh in 2022. Apart from the increasing demand due to economic growth, several other factors also account for the shortage.
First, out of the 60 major power plants under construction, 35 projects with a combined capacity of 39,000 MW face delays of one to five years. The cancellation in 2016 of plans to build nuclear power plants also led to unexpected changes in the country’s energy development blueprint.

Second, new projects are facing difficulties as the government no longer issue financial guarantees for power plants. As a consequence, major utility developers such as EVN, PetroVietnam and Vinacomin now have to rely on more expensive commercial loans to fund their projects. Financial arrangements for new projects therefore take more time to complete.

Third, worsening air quality in Hanoi and Ho Chi Minh City as well as the government’s stronger emphasis on green energy has prompted Vietnam to reduce its reliance on cheaper but polluting coal-fired power plants, which currently account for 41% of Vietnam’s electricity output. Cleaner energy sources, such as gas-fired power plants and wind and solar farms, are prioritized as alternatives to be developed.

However, gas-fired power plants are costly, and Vietnam does not have liquefied natural gas (LNG) storage facilities to serve such utilities yet. Meanwhile, although wind and solar farms are faster to build, their capacity is rather limited. Even as Vietnam is currently the renewable energy frontrunner in Southeast Asia, the total capacity of its 82 solar farms in operation by June 2019 was just 4,464MW, accounting for only 8.28% of the country’s total electricity output. The development of new renewable energy projects in the future will face challenges due to the lower feed-in-tariffs approved by the government as well as Vietnam’s slow upgrade of the power transmission system to absorb the additional output from such projects.

To resolve the power shortage in the short to medium run, Vietnam will have to increase its electricity imports from neighbouring countries, especially Laos. However, this option presents Vietnam with a dilemma in how to deal with Laos’ plans to build more hydropower dams on the Mekong River and its tributaries. Due to concerns about environmental impacts on its Mekong Delta, Vietnam has long protested Laos’ plans to build at least nine major hydropower dams along the river. Despite the close relationship between the two countries, Vietnam has so far been unable to persuade Laos to reconsider its plan.

Laos’ recalcitrance, now coupled with Vietnam’s increasing power shortage, seems to have prompted Hanoi to consider a new approach. In June 2019, for example, PV Power, a subsidiary of PetroVietnam, held a conference to discuss its participation in the Luang Prabang Dam project on the Mekong River. PV Power is reportedly holding a 38% stake in the project. Some experts have suggested that as Vietnam can’t stop Laos from building the dams, it’s wise for Vietnam to participate in such projects to control the design and operation of the dams to minimize environmental impacts on the Mekong Delta. This approach is pragmatic and perhaps the best solution for Vietnam at the moment, but it is not perfect. Vietnam won’t be able to participate in all the projects, and the participation in any of them will weaken Vietnam’s argument against similar projects in Laos and elsewhere.

In the long run, Vietnam needs to solve its own problems to ensure a greener, sustainable and affordable supply of power for its national development. Even when Vietnam participates in certain hydropower projects in Laos, it needs to continue protesting against new dams on the Mekong. In case Laos decides to proceed with building new dams, it is important for Hanoi to ask Vientiane to adopt suitable dam designs and hydropower technologies to minimize environmental impacts. After all, the Mekong Delta is important to the food security of not only Vietnam but also the region.

Dr Le Hong Hiep is Fellow at ISEAS – Yusof Ishak Institute.

The facts and views expressed are solely that of the author/authors and do not necessarily reflect that of ISEAS – Yusof Ishak Institute.  No part of this publication may be reproduced in any form without permission.