Decision No. 2014/QD-BCN Issuing Temporary Provisions on Content for Economic and Financial Analysis and Investment Calculation and Pricing Framework for Electricity Purchase and Sale in Power Generation Projects

Pursuant to …;

Issuing Temporary Provisions on Economic and Financial Analysis Content for Investment and Pricing Framework for Electricity Purchase and Sale in Power Generation Projects

framework for the purchase and sale prices of electricity from power generation projects

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THE MINISTER OF INDUSTRY

On the basis of Decree No. 55/2003/ND-CP dated May 28, 2003 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Industry;

On the basis of Decree No. 105/2005/ND-CP dated August 17, 2005 of the Government detailing and guiding the implementation of certain provisions of the Electricity Law;

On the basis of Decree No. 16/2005/ND-CP dated February 7, 2005 of the Government on project management for investment construction works;

On the basis of Decree No. 112/2006/ND-CP dated September 29, 2006 of the Government amending and supplementing certain articles of Decree No. 16/2005/ND-CP on project management for investment construction works;

Pursuant to the proposal of the Director of the Energy and Oil Department,

DECISION:

Article 1. Attached herewith are the Temporary Provisions on Economic and Financial Analysis Content for Investment and Pricing Framework for Electricity Purchase and Sale in Power Generation Projects.

Article 2. These Decisions shall take effect 15 days from the date of signature and replace the "Temporary Guidance on Economic and Financial Analysis Content for Investment and Pricing Framework for Electricity Purchase and Sale in Power Generation Projects" issued together with Decision No. 709/QD-NLDK dated April 13, 2004 of the Minister of Industry.

Article 3. The Heads of the Ministry's Office, Inspectorate, Departments, and Units under the Ministry, and organizations and individuals engaged in electricity activities are responsible for implementing these Decisions.

 

 

 

 

 

 

TEMPORARY PROVISIONS

Contents of Economic and Financial Analysis for Investment and Pricing Framework for Electricity Purchase and Sale in Power Generation Projects

(Issued along with Decision No. 2014(Decree No. 2014/QD-BCT dated June 13, 2007 of the Minister of Industry)

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PART I

GENERAL PROVISIONS

Article 1. Purpose and Scope of Application

These provisions temporarily stipulate the contents of economic and financial analysis for investment and pricing framework for electricity purchase and sale in power generation projects, serving as a basis for negotiating power purchase contracts, aiming to unify methodological approaches and ensure the selection of effective projects.

Data specified in Appendix 1 depend on the conditions of the competitive power generation market, except where there are separate agreements with the electricity buyer or specific guidance from competent state authorities.

Article 2. Applicability

These provisions apply to organizations and individuals investing in power generation projects.

In cases where there are differences in the methods and data used for calculations, the Investor must submit explanations during the project appraisal, approval process, and power purchase contract negotiations.

Article 3. Principles of Implementation

When required to analyze the economic and financial efficiency of power generation investment projects, the Investor shall follow the guidelines set forth in these provisions.

Article 4. Definitions

In this Provision, the following terms are understood as follows:

1. Economic Analysis is the evaluation of the feasibility and effectiveness of an investment project for the economy. The results of economic analysis serve as a basis for competent authorities to decide whether to permit or not permit the project or to decide on support mechanisms (interest rate subsidies, additional budget allocations, tax preferences, and other support policies) to encourage the implementation of the project.

For some special projects, alternative options may be necessary when needed.

2. Financial Analysis is the assessment of the feasibility of a project from the perspective of the Investor to guide the Investor on capital mobilization methods and financial mechanisms to ensure the project achieves reasonable profitability, ensuring sustainable, long-term, and efficient operation. The results of financial analysis serve as a basis for determining priority when making investment decisions.

3. Total investment capital (I) is the total investment cost for constructing and putting the facility into operation. The total investment capital of the project can be formed from: Equity Capital (I_csh) and Borrowed Capital (I_v).

4. Discount Rate (i) is the cost of investment capital expressed as a percentage (%), used to convert cash flows in economic and financial analysis over the project period into the first year of capital outlay.

The discount rates applied in economic and financial analysis include: economic discount rate (i_k%) and financial discount rate (i_f%).

5. State-funded Investment Project is a project defined in Section 1, Article 58 of Decree No. 108/2006/ND-CP dated September 22, 2006 detailing and guiding the implementation of certain provisions of the Investment Law.

Chapter II

CONTENTS OF ECONOMIC AND FINANCIAL ANALYSIS FOR POWER GENERATION PROJECT INVESTMENTS

Article 5. Content of economic analysis of investment projects

1. The economic analysis of investment projects aims to evaluate the following indicators sequentially:

a) Economic Internal Rate of Return (EIRR %);

b) Economic Discounted Payback Period (CFBT/I);_kc) Economic Net Present Value (NPV);

d) Economic Benefit-Cost Ratio (B/C)._k);

2. The economic efficiency indicators of the project are calculated based on the accumulated cash flow (CFBT) of each year during the project period and the economic discount rate i._k).

3. The State encourages investment projects for power sources that do not use state capital with an economic internal rate of return (EIRR %)._kContent of financial analysis of investment projects_k% = 10%.

1. Some general principles in the financial analysis of investment projects > 10%.

Article 6. a) Financial analysis of investment projects applies to recommended technical options and is considered from the perspective of the investor to select the optimal option;

b) For the options under consideration, certain factors such as investment capital, allocation of investment capital, interest allocation, role and operation mode of the project within the power system, and the number of hours of maximum capacity dispatch need to be specifically calculated. Power generation projects must base their calculations on approved master plans to determine capacity and energy output corresponding to each operational phase as the basis for annual revenue calculation.

c) The number of hours of maximum capacity dispatch for power plants applied in economic and financial analysis is specified as follows:

- For coal-fired thermal power plants:

The number of hours using maximum capacity ranges from 6,500 hours/year to a maximum of 7,000 hours/year.

- For combined cycle gas turbine power plants:

- For hydropower plants with installed capacity > 30MW

The number of hours using maximum capacity is specifically calculated according to hydrological conditions, reservoir regulation, and taking into account the requirement to ensure downstream water supply during dry seasons, and is applied within the range of 4,000 hours/year to a maximum of 5,500 hours/year.

- For hydropower plants with installed capacity > 30MW

- For hydropower plants with installed capacity

30MW

The number of hours using maximum capacity is specifically calculated according to hydrological conditions or reservoir regulation of each plant and is applied within the range of 3,000 hours/year to a maximum of 7,000 hours/year. < 2. Financial indicators to be determined sequentially in financial analysis include:

a) Financial Net Present Value (NPV);

b) Discounted Payback Period for Equity Holders (CFAT/I);

c) Financial Internal Rate of Return (FIRR %);_f);

d) Financial Benefit-Cost Ratio (B/C)._f3. The financial efficiency indicators of the project are calculated based on the accumulated financial cash flow (CFAT) of each year during the project period and the financial discount rate i % (the weighted average cost of capital for various sources of funds)._csh);

: Total equity in total project investment.

: Total borrowed capital in total project investment._f);

I: total project investment._f%: rate of return on equity._f%: interest rate on borrowed capital (as stipulated in Article 8.2).

Where:

I_csht%: corporate income tax rate.

I_vIn cases where equity capital is contributed from multiple sources, the rate of return on equity capital (i %) used to determine the financial discount rate (i) is calculated according to the principle of the weighted average cost of contributed capital.

The investor is responsible for the capital structure and the rate of return on each source of capital.

i_csh%: rate of return on equity.

i_v%: interest rate on borrowed capital (as stipulated in Clause 8.2).

t%: corporate income tax rate.

In cases where the equity capital comes from multiple sources, the rate of return on equity capital (i_csh%) used to determine the financial discount rate (i_f) shall be calculated based on the weighted average principle of various contributed capital sources.

The investor is responsible for the capital structure and the rate of return on each source of capital.

Article 7. Requirements for economic and financial analysis content

1. The content of economic and financial analysis includes indicators presented in the following three tables:

a) Table 1: Business Result Budget

b) Table 2: Economic Accumulation Flow and Economic Efficiency Indicators

c) Table 3: Financial Accumulation Flow and Financial Efficiency Indicators

2. The format of the tables mentioned in Clause 1 of this Article shall be implemented according to Appendix 2.

Article 8. Methods of Capital Mobilization and Financial Schemes

1. Investor's Capital Mobilization

a) For power generation investment projects, the Investor must ensure the proportion of equity capital in accordance with current regulations;

b) Equity capital (including all types of contributions from shareholders) is the source of the Investor's contribution to the project.

2. Borrowed Capital Mobilization (the amount expected to be borrowed equals the total investment capital minus the equity capital portion).

a) For projects that have separate loan agreements or commitments to mobilize capital, when conducting financial analysis, the project investment capital under the loan conditions (interest rate, grace period, repayment period) agreed upon in the agreement or commitments shall be applied;

b) If borrowed capital is a mix of multiple sources, the interest rate on borrowed capital (i%) shall be calculated as the weighted average of the interest rates of the various borrowed capital sources;_vc) For projects where the borrowing source cannot be clearly identified and commercial borrowing is anticipated, it is necessary to calculate based on several capital mobilization schemes, including at least the following two schemes:

- Scheme 1: 100% of the borrowed capital is raised through domestic commercial loans.

- Scheme 2: up to 85% of foreign loans for imported equipment via export credit - supplier financing, the remainder being domestic commercial loans.

Domestic borrowed capital interest rate: taken as the interbank long-term domestic borrowed capital market interest rate at the time of project preparation.

Foreign borrowed capital interest rate: taken according to the export credit loan conditions at the calculation time.

Repayment period ranges from 10 to 15 years depending on each project's repayment capacity and bank regulations at the calculation time.

Grace period not exceeding the construction period.

Article 9. Sensitivity Analysis in Project Financial Analysis

Sensitivity analysis is conducted in project financial analysis to assess risk scenarios for the Investor after project implementation. Sensitivity analysis is calculated for the following scenarios:

1. Investment capital increases by 10%.

2. Generated electricity decreases by 10%.

3. O&M costs, fuel costs increase by 10%.

4. Investment capital increases by 10%, generated electricity decreases by 10%.

Article 10. Input Data and Calculation Assumptions

1. Basic data used in the economic and financial analysis of power generation projects is taken from the parameters in Appendix 1.

2. The calculation base year (calculation point) is the start year of implementation and is considered the first year.

3. Project financial analysis does not take inflation or currency depreciation (both foreign and local currencies) into account.

Article 11. Financial Internal Rate of Return (FIRR%)

The Financial Internal Rate of Return of power generation projects (FIRR%) shall not exceed 15%.

Article 12. Other Provisions

Chapter III

IMPLEMENTATION

During implementation, if there are difficulties or issues arise that are not suitable, organizations and individuals are requested to report to the Ministry of Industry for timely review, supplementation, or amendment./.

During implementation, if there are any difficulties or issues that arise which are not suitable, organizations and individuals are requested to report to the Ministry of Industry for timely review, supplementation, or amendment./.