Increasing demand for coal, especially coal for electricity production
Vietnam’s coal industry not only supplies more than 1/3 of the electricity generation market share but also plays an important role in providing energy to industries. In recent years, the demand for coal had reached strong growth records. According to the report from the Vietnam Coal and Mineral Industry Group (TKV), the company provides more than 36 million tons of coal for electricity production, an increase of nearly 7 million tons compared to 2018. VIRAC predicts that coal demand for electricity would increase by 60 million tons in 2020, and can be doubled by 2030.
Source: VIRAC, ERAV
In the context of the Covid-19 epidemic, following the growth momentum of 2019, in the first 6 months of 2020. The industry’s total revenue is estimated at over 63 trillion VND, equal to 100% compared to the same period of 2019. TKV’s raw coal production yielded 21.38 million tons, equal to 53% of the year’s plan, down 1% over the same period last year.
Source: VIRAC, GSO
Large mining output through the application of mechanization helps increase labor productivity. Specifically, the labor productivity of Ha Lam increases 3 to 4 times. Some projects are in operation process: Mao Khe’s main conveyor system ( 70% reduction of operating manpower); the automation of the XV kiln conveyor belt line of -300 Ha Lam (40% reduction of manpower); automation systems for Nui Beo Coal Company (50% reduction of manpower).
The new trend of decreasing export and increase in import
In the first 3 months of 2020, coal import volume reached 11.21 million tons, up 22.3% over the same period last year. The phenomenon resulted primarily from the demand for coal in high-level electricity production. It is estimated that the domestic production capacity for the electricity industry is about 40 million tons. The total demand for coal in electricity production reaches 60 million tons.
Source: VIRAC, GDVC
Indonesia is currently the main coal exporter to Vietnam. In contrast to the evolution of the coal import flow, the Vietnam export volume up to March 2020 recorded at 0.22 million tons. China and Japan are the two markets with the highest average coal import price. In the first 3 months of 2020, the price of imported coal from China is $302/ton, from Japan is $231/ton while coal from Indonesia is only $51/ton.
Difficulties in coal industry activities
Difficult operating conditions
In Quang Ninh mine, the exploration reserve is about 8.8 billion tons, the estimated resource is 1,900 billion tons and the forecasted resource is 4,800 billion tons. Coc Sau, Deo Nai and Cao Son mines will be fully exploited by 2025. Vietnam mines will mainly be left with increasing depth, the higher cost of exploitation.
The level of exploitation is getting more challenging than ever before. The production conditions of the coal mines are now -300m below sea level and the ratio of open coal to underground coal accounts for 50-60%. Due to open-pit coal mines, Vietnam’s coal price is now less competitive than other players in the global market.
Limitations in the application of mining technology
On one hand, in Vietnam, the energy efficiency in thermal power plants is only 28 to 32% (10% lower than global average), the efficiency of industrial boilers is only about 60% (20% lower than global average). Therefore, the amount of coal consumed per unit of energy in Vietnam is much higher than in other countries. On the other hand, causing environmental pollution and increasing greenhouse gas emissions creates a high risk of compliance with laws and regulations.
The environmental resource tax for coal businesses has increased from 9% to 12% since July 1st, 2016. Taxes and fees of the coal industry increased to record levels, while the world was no more than 12%. Besides, the coal import tax rate of 0% makes domestic coal struggle to compete against imported coal.
Vietnam coal industry forecast
According to a forecasted scenario, the demand for coal will still increase rapidly in the next 15 years, mainly focusing on electricity production. Some specific targets are set out between 2021 and 2025: Total revenue reaches 760 trillion VND (up 25% compared to the implementation of the period 2015-2020. Profit reached 17.5 trillion VND, on average 3.5 trillion VND/year. The total investment value is up to 76.9 trillion VND, an average of 15.4 trillion VND/year; labor productivity will increase by 6 to 7%/year.
After 2035, Vietnam has plans to switch to alternative energy sources such as gas or renewable energy (solar, wind, hydropower, biofuels), which use less carbon. Hence, the coal industry would have lower environmental impact and induce sustainable production.