Vietnam's energy industry is luring foreign investment

In the past month, Vietnam has experienced an extraordinary raft of investment in major energy projects. The government has in recent years been very open to foreign capital and has already developed a strong banking sector. Now it is the turn of the energy companies and Vietnam is managing this new market very effectively, both in terms of sustainability and investment.

The burst of investment activity in the Vietnam energy sector has taken place over a short space of time. In only a few months the government has signed contracts for nuclear reactors, large hydro projects, biomass power stations and solar panel production facilities. Furthermore, Vietnam is said to have significant wind power potential and has already discussed building a liquefied natural gas terminal by 2015.

Few countries in the world offer the resource wealth of Vietnam, while fewer still can boast a similarly positive investment climate. The country is well placed for rapid growth and is likely to be the next Asian growth spot. Moreover, investment has not only been forthcoming from large Western companies in the US and the UK; investors from Russia, Japan, and China have also expressed their interest.

This market development can be seen as a case study for two important themes within the current energy environment. Firstly, Vietnam may be the first example of a developing country that has met its growing energy needs with minimal carbon emissions. Few countries have established such a sustainable energy portfolio from scratch. Secondly, resource-hungry companies and nations from around the globe are now fighting for the same reserves, whereas until recently the sources of investment were far less diverse. In Vietnam's case, this renewed interest has been heightened by its rich deposits of rare earth metals.

Japan is one of the world's largest consumers of rare earth minerals, which the country uses in its technological exports. China's recent decision to curb its exports of rare earth minerals provoked uproar from Germany, another large importer of such resources, but Japan has quietly pursued a separate tactic. Having recognized that Vietnam has large reserves of rare earth metals, Japan has pursued these with the promise to build two nuclear reactors for the country. So long as Vietnam stays out of the friction between Japan and China, Japan's interest could create a lucrative export market for Vietnam's resources.

Investment in the energy sector will be beneficial to the population of Vietnam. Vietnamese electrification has improved by over 40% in 10 years, following major industry reforms in 1995. However, since this initial drive progress has stagnated, while the electrification rate masks the continuous power cuts suffered in the country. In summer 2009, the capital city Hanoi faced more than three hours of power cuts every day. Despite access to the grid, the population becomes reliant on candles and pedal power during these shortages. Moreover, the booming motorcycle and automotive industries have caused fuel demand to grow exponentially. The textile industries are also growing, while the business districts continue to expand at an accelerated rate.

Most countries have fed such rapid energy demand with coal, gas and oil. Vietnam, however, has actively pursued its natural assets. The Mekong Delta provides significant hydro potential, the climate offers major solar potential and the country's coastal location indicates excellent offshore wind potential. Its large oil reserves are relatively untouched, making them attractive to companies which want to profit from the improving oil price. Finally, it is Vietnam's appetite for nuclear power which may distinguish it from other developing nations. Nuclear generation is safer and more efficient than it has been in the past. By pushing such a responsible and pragmatic energy policy, the country's growth may actually be sustainable.

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