The sugar industry is having to overcome the challenges of high material costs and low prices of bagasse-fired power to deal with the pressure of the ASEAN Trade in Goods Agreement (ATIGA).
Bagasse-fired power– prospects for improving the sugar industry
Each year, Lam Son Sugar Joint Stock Corporation (Lasuco) earns tens of billions of Vietnamese dongs from the sale of bagasse-fired electrical power. In the 2018 sugarcane crop, Lasuco fetched a revenue of VND43 billion from selling baggase-fired electricity.
However, the corporation has had to use this sum of money to compensate the costs of production in order to enhance the competitiveness of Lam Son sugar.
Lasuco has a generating capacity of 33.5MW. Every year, Lasuco sells about 150 million kWh of electricity to the national grid. With the selling price of electricity at 5.8 cent per kWh (VND1,350 per kWh), the group is suffering losses of VND500-600 per KWh as electricity production costs have amounted to VND1,900 per kWh.
According to Lasuco General Director Le Van Phuong sugar production should go along with electricity generation, noting that investors are hesitant to fund bagasse-fired electricity at the low price of VND1,350 per kWh,as the minimum price for a profitable investment is 7.4 cent per kWh. In Thailand, the price is at 10.8 cent per kWh.
The role of bagasse-fired power is undeniable in sugar production and the development of renewable energy in Vietnam. However, few investors greatly prefer the price of 5.8 cent per kWh for bagasse-fired electricity.
Vu Ngoc Duc, deputy director of the Renewable Energy Centre of the Energy Institute under the Ministry of Industry and Trade, said that just 9 of the 40 sugar factories in Vietnam have invested in producing bagasse-fired electricity with a total installed capacity of 400MW. However, only 100MW has been sold to the national power grid.
Overcoming the difficulties ATIGA
ATIGA was signed by member states in February 2009 and the tax on imported sugar, as stipulated by ATIGA, is held at a level of 5%. However, under the roadmap for ATIGA’s tariff reduction, the sugar industry will encounter numerous difficulties when the import tax is lowered to zero%.
The sugar industry now faces tough competition from regional countries. For example, Thai sugar accounts for 80% of all sugar imported by Vietnam. The price of sugar in Thailand is always lower than domestic prices thanks to cheaper production costs and government subsidies.
Lasuco General Director Le Van Phuong said to compete with foreign rivals, sugar mills have operated under the ‘outsourcing method for sugar growers’. This means that growers can enjoy the total value of produced sugar, while factories only benefit from by-products such as bagasse, molasses, and press mud.
Apart from pressure from production costs, many sugar mills are facing challenges from sugar smuggled in from Thailand. According to statistics, as many as 500,000 tons of sugar are imported illegally from Thailand into Vietnam annually, accounting for one-third of the domestic sugar output.
According to Pham Quoc Doanh, Chairman of Vietnam Sugarcane and Sugar Association, sugar by-products such as ethanol and biomass-fired power are seen as offering plentiful opportunities for the sugar industry to sharpen its competitiveness.
Mr Doanh anticipated bright prospects for investment in bagasse-fired electricity, however, greater attention should be paid to the price of such sources of electricity while noting that the production of bagasse –fired electricity has helped resolve environmental issues and increase the efficiency of production.
Adam Ward, Country Representative for Vietnam at the Global Green Growth Institute (GGGI), suggested Vietnam gradually increase the sale price of bagasse-fired electricity to 7.4 cent per kWh, a move which would benefit the market.
He stressed the necessity of expanding production of biomass-fired power to meet the increasing demand in Vietnam and in turn, help increased the sugar industry’s competitiveness with foreign rivals.
In Mr Doanh’s opinion, the most effective model for the sugar industry in the coming time is a combination of production of sugar, ethanol and bagasse-fired power as the advantages of ethanol production (for biofuel) are open outlets with monopoly like the electricity sector. Currently, Vietnam has at least seven wholesale points for oil and gas imports and ethanol production is now being highly encouraged.