Vietnam’s power crisis hits local firms, foreign investors

This picture, taken on June 14, 2023, shows the Thac Ba hydropower dam in Yen Bai province. Vietnam, which relies on hydropower for almost half its energy needs, has struggled with a series of heatwaves since early May and the mercury reached a record high, while rivers and reservoirs at hydroelectric power plants have dried up. (Photo by Nhac NGUYEN / AFP)

HANOI, Vietnam  -An intensely hot summer and unprecedented drought are straining energy supplies in northern Vietnam, prompting rolling blackouts and sudden power outages that have led to “uncountable” losses among local firms and foreign manufacturers.

Vietnam is a crucial part of the supply chain for some of the world’s most important companies, and many of them — including Samsung and Apple supplier Foxconn — have factories in the north, not far from the capital Hanoi.

Operations at a large number of factories have been badly impacted by the lengthy power outages, business leaders told AFP. Some were given very little notice or had no warning at all.

“We had a 26-hour power cut. It cost us tens of thousands of dollars that day. It’s not nice at all,” said Vu Chi Hieu, director of Vietnam’s KingBill XNK Joint Stock Company that produces aluminum parts in Bac Ninh province, which neighbours Hanoi.

Last week, several northern areas — many of them home to key industrial parks — were told to cut their energy use in half, forcing the Japanese, Korean and European chambers of commerce to petition the government to find a quick solution to the crisis.

Susumu Yoshida from Japan Chamber of Commerce and Industry told AFP that direct damage from one single power outage affecting five manufacturers at an industrial park was over $190,000.

“Total damage among IPs (industrial parks) in northern Vietnam seems to be an unaccountable amount,” he said.

The Southeast Asian nation has struggled with a series of heatwaves since early May when the mercury reached a record high, while rivers and reservoirs at hydroelectric power plants have dried up.

Vietnam relies on hydropower for almost half its energy needs but 11 big plants in the north and central regions have had their power generation severely interrupted in recent weeks.

Two out of three units at one of the biggest in Vietnam, Thac Ba, have stopped functioning.

At the same time, as the use of air conditioners and electric fans surged, there has been “a 20 percent increase in demand on the network”, National Load Dispatch Center deputy director Nguyen Quoc Trung said.

“The power shortage has been and will be intense in the north,” until early July, Trung warned at a roundtable discussion in Hanoi late last week.

Trung’s boss, Nguyen Duc Ninh, was suspended Wednesday pending an investigation into the outages.

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In the port city of Hai Phong, several associations representing Vietnam’s logistics and shipping industries — which rely on a digital network to coordinate deliveries and need power to operate loading equipment and keep trucks cool — filed complaints to state electricity company EVN.

For each power cut lasting over six hours, companies may have to compensate waiting vessels, which pay a docking fee of up to $50,000 and also face fines themselves for a delay in delivery of the goods, the associations said in a public statement.

South Korea — Vietnam’s top foreign investor — also complained that power cuts two or three times a week “had badly affected production activities”.

“The power cut issue will be very serious for not only firms who have already invested in Vietnam, but also for us trying to call for investors to come to Vietnam,” Hong Sun, chairman of the Korean Chamber of Business in Vietnam, told AFP.

Other investors agreed that the blackouts — along with an increasingly dark capital city that has turned off many street lights — are not a good look for Vietnam.

“We have seen this issue raised both by clients operating in Vietnam and those clients seeking to invest, especially investment in the power sector,” said Kevin Hawkins, a partner at DFDL law firm in Ho Chi Minh City who specializes in energy.

“It is concerning and (they) question whether this is a short-term issue or a continuing problem.”

 ‘Slowly dying’

A recent government target to reduce energy consumption by 2 percent per year until 2025 suggests the issue may persist.

Vietnam has also made an ambitious pledge to shift away from coal-fired power by 2050 as part of efforts to counter climate change.

Demand for electricity in fast-growing Vietnam is increasing by more than eight percent per year on average, according to an official statement in early June.

Power saving is therefore “an important and urgent solution to maintain energy security and sustainable development,” the government said.

Thibaut Giroux, chairman of the French Chamber of Commerce and Industry and CEO of steel parts producer Stolz-Miras, told AFP his factory received a request to reduce average daily consumption by 10 percent from now to 2025, even though their facility is stationed in southern Dong Nai province.

“(To comply) I would have to reduce production, because basically what is consuming power is my production machinery,” said Giroux, who provides parts for giants such as Nestle, Unilever and Bayer.

“If I do that I’m slowly dying.”

If no solution is found, Japan’s chamber of commerce warned in a letter to authorities that “some member companies… may even think of shifting their production facilities” out of Vietnam.