Power Investors are Getting Hit by Stealth Land Costs

By Ngoc Linh

Rising investment costs are spooking much needed independent electricity producers.

Foreign investors building electricity plants under the build-operate-transfer (BOT) model do not need to pay rent on the land that they use or land clearance costs.

However, many are being saddled with land and related infrastructure costs for BOT projects.

While provincial committees are required to provide cleared land for BOT projects, the reality is that local people’s committees usually claim they are too cash-strapped and developers must fend for themselves.

Tony Foster, head of the Vietnam Business Forum’s Infrastructure Working Group, last week told the forum that local authorities needed to take money from their budgets to prepare land transfers.

“Otherwise, the cost is passed on to the private sector and the cost to the private sector is invariably higher than it would be to the local people’s committee,” Foster said.

Among the BOT power projects which are being or about to be implemented, the Mong Duong 2 project in Quang Ninh province, backed by AES Corporation, Posco Power and China Investment Corporation, is the only to have received cleared land so far. Other power project investors have had to pay for land clearance and site improvement, often amounting to more than $50 million.

Nguyen The Phuong, Vice Minister of Planning and Investment, said the cost of carrying out land clearance ‘must’ be borne by local authorities. However, he said, the ability to pay land compensation depended on how much money a province had.

“During these difficult economic times, our provincial authorities need a bit of help from the investors,” said Phuong.

However, independent electricity power producers also face infrastructure costs.

State-owned Electricity of Vietnam, the country’s sole power distributor or the Ministry of Industry and Trade often try to put the cost and the risk of these items on the back of the developer.

Foster said power investors had to negotiate with responsible ministries and companies for related infrastructure, which “results in higher prices, uneconomic risk allocations and delays”.  — VIR

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