Solar power projects should not depend on bank loans

SGGP Investment & Finance had a discussion with Dr. Tran Du Lich to further clarify this issue.

JOURNALIST: - The issuance of Decision 11/2017 by the Prime Minister has been encouraging the development of solar power projects. Banks play an important part by lending 70% of the needed capital. In your opinion, should banks lend for solar power projects?

Dr. TRAN DU LICH: - The government currently has some policies to encourage the development of recycle energy projects like solar and wind power to create more electricity resources, to have a better supply structure, and reduce the burden on thermal power, especially coal power.

However, the problems causing slowness in development of green power projects are the selling price and the connection to the EVN electricity grid. EVN is the sole wholesale buyer in Vietnam. Only projects which are approved by government and get a connection commitment by EVN are allowed to be implemented. 

When lending to green power projects, banks should consider as many factors as possible, in which the most important would be to check whether the project is on the government list or not.

The other problem arising in 2019 is the change in Plan Law. Accordingly, many solar and wind power projects have to be on hold until issuance of the Decree which will guide the implementation of the Plan Law. 

With the recent developments in the government and EVN policies, some solar and wind power projects have become more attractive in the eyes of banks.

When lending to power projects which are already on the government list and have EVN connection commitment, banks face less risks. If the projects cannot qualify these basic conditions, the lending risk is inevitable.

- Previously, BOT projects were very attractive in eyes of bankers. Is this a lesson for banks when lending for solar power projects?

- In the condition that a huge investment is flowing into solar power plants, we should not forget the past lessons learnt from BOT projects. According to the latest report published, 32% of completed BOT projects cannot deliver the planned revenue. These projects were funded by VND 43,000 billion bank loan and banks are facing the risk of loan restructure and debt overdue.

Currently, some banks are offering to sell their loan books which have collateral of fee collection rights. The lessons learnt from the BOT projects are that these projects lacked feasibility and the investor capital was very low, and hence mainly relied on bank credit line.

This risk should be considered seriously. Banks should choose eligible investors, and avoid investments which are mainly dependent on bank loans. Bank loans lead to burden of interest, while corruption in construction creates a higher investment capital. These two factors created ineffectiveness and financial difficulties in many BOT projects. 

I think this lesson is worth remembering when lending for other such types of projects, including recycle energy projects.

- It is a good sign that many investors are showing interest in green power projects, especially solar power plants. However, besides bank loans, is there other funding sources for these projects?

- The development of recycle energy, including solar power, is the core energy development strategy of Vietnam. The solar and wind power projects are attractive in eyes of bankers.

In the condition that a huge investment is flowing into solar power plants, we should not forget the past lessons learnt from BOT projects.

However, I think investors in these projects should diversify their funding sources. It is not healthy to mainly depend on bank credit. There are other ways.

Firstly, there should be a regulation that requires smaller investors to consolidate and merge to become bigger investors. 

Secondly, we know that the government is motivating enterprises to raise funds through the security market, so there should be a policy to encourage these investors to fund directly from this channel, like issuing bonds.

The third capital source will be from the banks. 

Those are ways to fund solar power projects. The funding from stock market should be prioritized. Currently, there are some funds supporting the development of solar power projects, but investors have to seek them. Our government does not set aside a budget for these types of projects. 

When lending to green power projects, banks should consider as many factors as possible, in which the most important would be to check whether the project is on the government list or not. Only approved projects are allowed to connect to EVN grid and are able to sell electricity to EVN.

If these requirements are met, banks will face less risk. If not, banks will incur more risks as experienced from BOT projects. And I believe that banks are now smart enough to consider these elements.

- Thank you very much.