ADB Helps Viet Nam Electrify Remote Communities

MANILA, PHILIPPINES - The Asian Development Bank (ADB) is extending a US$151 million loan to help Viet Nam expand and improve electricity services in poor and remote communities.

ADB’s Board of Directors has approved the Renewable Energy Development and Network Expansion and Rehabilitation for Remote Communes Sector Project, which will develop 5-10 mini hydropower plants to serve communes in mountainous areas in the north and center of the country.

It will also provide financial support to the Government’s ongoing rural electrification program, which is seeking to expand power coverage throughout the country, particularly in provinces with large ethnic minority communities.

“Access to reliable and affordable electricity supplies will improve the quality of life and living conditions in the targeted communes and increase the time available for income generation and education,” says Edvard Baardsen, Senior Infrastructure Specialist for ADB’s Southeast Asia Department.

Viet Nam’s electricity coverage has surged from 51% of households in 1996 to over 91% in 2008 as its economy boomed. However, power investments of over $3 billion a year will still be needed over the next decade to fully electrify the country. Funding power services in the remaining unelectrified remote areas is especially difficult because of the high cost and unattractive returns.

To address this constraint, the project will share the cost of expanding the national grid with the planned mini hydropower stations. It will use revenue generated from the plants’ electricity sales to subsidize expansion of the medium and low voltage grid to the target communities.

“This approach will use locally available hydro resources for the benefit of local communities and provide surplus renewable energy to the national power network,” says Mr. Baarsden. It will also help overcome funding obstacles that have left many existing small hydropower stations around the country idle or abandoned.

The loan, in the form of Special Drawing Rights from the concessional Asian Development Fund, covers 76% of the project cost of $197.6 million. Additional counterpart finance totaling $46.6 million will be provided by three subsidiary companies of state utility, Vietnam Electricity. The loan will have a 32-year maturity, with a 1% interest charge during the 8-year grace period, and 1.5% over the balance.

The three subsidiary power companies of Vietnam Electricity will be the executing agencies for the project, which is expected to be completed by December 2015.

Technical assistance (TA) of $2.5 million, financed from the ADB-administered Climate Change Fund and from the TA Special Fund, will be extended to support development of a renewable energy law and for capacity building. In addition, the Government and executing agencies will make in-kind contributions totaling $400,000.

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