Vietnam’s Increasing Demand for Environmental Services

Vietnam’s current economic prosperity has been driven by the country’s expanding industrial activities. But these have also sparked concern about the resulting pollution and its impact on the environment.

The Vietnamese government has begun to screen out investment projects which might cause harm to the environment, while all relevant investment projects are required to undertake environmental impact assessment.

To comply with the environmental requirements under Vietnam’s new environmental protection laws, local and foreign enterprises are calling on environmental services to help treat various kinds of industrial waste and pollutant emissions.

Hong Kong-based companies are in a strong position to provide them with one-stop services covering environmental engineering, project management and the relevant due diligence services. By reputation, Hong Kong is home to a number of players who excel in using environmental technologies which are developed to international standards.

This is especially crucial in the Vietnamese market, as the country still lacks experience and a comprehensive management framework when handling more complicated environmental issues.

The primary sector still makes up a notable portion of the Vietnamese economy. Picture : adb.org

Concerns about the Environment amid Business Expansion

In order to achieve modernisation, Vietnam is determined to attract more investment for higher value-added or high-tech industries.

As the government has indicated on several occasions, the country has become increasingly more cautious when selecting foreign direct investment (FDI) projects.

Recently, Ho Chi Minh city officials have stressed that the government would screen FDI and reject any projects which would occupy too much land or use outdated technologies, in particular any that might have a detrimental effect on the environment.

At a forum held in November 2016 by Vietnam’s Ministry of Planning and Investment, the government warned that natural disasters and environmental pollution could cause the country’s GDP to shrink by about 0.6% during the period 2016-2020, making this a threat to Vietnam’s medium-term development. [1]

In particular, water, air and land pollution in cities, large residential areas and craft villages has been on the rise. Concerted anti-pollution measures are now required in order to conserve water and other natural resources, while safeguarding agriculture and rural development.

These measures are in line with the objectives spelt out in Vietnam’s ‘National Strategy on Environment Protection to 2020 with Visions to 2030’, which calls for increased efforts to reduce the causes of pollution.

There are also growing concerns about the impact of various economic activities on the Vietnamese environment. Some pollution issues have resulted in public protests from farmers and residents. Notably, an estimated 93% of the population (including 98% of those living in urban areas and 91% in rural areas) now have access to hygienic water supplies [2]. However, those living in rural areas, making up some 66% of the total population [3], rely mainly on natural sources for their water supply. If these natural sources were to become polluted, the water supply and their living would therefore be at risk.

In 2016, the primary sector still made up a notable portion of the Vietnamese economy around 15% of the GDP. Also, agricultural and aquatic products accounted for about 15% of the country’s exports. [4] As such, serious pollution issues would threaten jobs and have a detrimental impact on the country’s overall economy.

Enhanced Efforts to Combat Pollution

Vietnam’s Ministry of Environment and Natural Resources has issued a number of national technical standards in order to limit the emission of pollutants by various industrial parties. Since June 2014, new Laws on Environmental Protection have been in effect, which aim to protect the land, water and air from pollution.

Under these new laws, environmental impact assessment is required prior to embarking on a range of economic activities, including industrial projects.

Activities undertaken in economic zones, industrial parks, high-tech parks, export processing zones, and so on are also required to meet the relevant environmental and emission standards. Those in breach of these requirements could be charged for damages as well as other legal liabilities.

The government has also stepped up its efforts to attract FDI to invest in the environmental industry, with a view to introducing more foreign technology into the country.

These efforts include the offer of a preferential tax rate for corporate income, as well as tax holidays for those investing in environmental businesses such as renewable and green power, energy from waste disposal, equipment for the environment sector and various other environmental protection activities.

Furthermore, the collection, treatment and recycling of waste have been designated among the list of business that can enjoy investment incentives since July 2015 [5]. (For details about the preferential tax treatment, please refer to Vietnam Utilises Preferential Zones as a Means of Offsetting Investment Costs.)

Many industrial zones and parks have set up their own environmental facilities since the initial stages of development, offering solid waste and waste water treatment services for their tenants and investors. For instance, since 1994 the authority of Hai Phong City and a consortium of international investors have been developing the Deep C Industrial Zone in Hai Phong. The Zone is now undergoing Phase II and Phase III expansion and it is evolving to become one of the biggest industrial zones in Vietnam. At present, the Zone accommodates more than 60 projects engaged in general industry, petro/chemical industry, processing industry and logistics services. As well as benefits such as preferential tax treatment, the Zone also provides reliable utilities for investors such as power supply, telecommunications and drainage. The Zone also offers water and waste water treatment as a means to attract further investors.

Another example here is the Long Jiang Industrial Park located in Tien Giang province, around 50km from Ho Chi Minh city. Long Jiang was first established in 2007 with investment from Zhejiang in China. It now accommodates over 30 investments from the Chinese mainland, Hong Kong, Japan, Taiwan, Korea and the ASEAN. As well as providing utilities and waste disposal / waste water treatment facilities, Long Jiang requires any manufacturers setting up business there to meet official emission standards as set out in the relevant laws and regulations:

Increasing Demand for Environmental Protection

Despite these various schemes, there is still a shortfall of effective environmental protection within Vietnam. Thus far, statistics indicate that only about 63% of industrial zones, including export processing zones, economic zones and high-tech zones, dispose of assorted kinds of waste and waste water in accordance with the corresponding criteria. This indicates that at least one-third of the zones are still not meeting the required disposal standards. In urban areas, the degree of disposal which meets statutory requirements is lower still, accounting for 19% of solid waste disposal and just 5% of waste water disposal.

In terms of air pollution, Vietnam relies heavily on thermal power plants for the generation of electricity, polluting emissions from which pose a serious threat to the environment. Currently, thermal power generation using coal makes up less than 30% of Vietnam’s total electricity production. According to the Ministry of Industry and Commerce, there are an estimated 20 coal thermal power plants in operation in the country, discharging some 16 million tonnes of ash and cinder a year. For the most part, these waste products are stored in open-air dumps which can cause health problems for nearby residents. So far, no effective measures have been put in place to treat this waste. [6]

In March 2016, Vietnam announced that it had revised its national plan for electricity development for the period 2011-2020 (including orientation towards 2030). In view of the surge in demand for electricity caused by economic development, the plan now aims to develop additional renewable energy sources such as hydroelectricity, wind power, solar power and biomass power. In particular, the government is determined to boost investment in hydroelectricity. Nevertheless, hydroelectricity’s share of total electricity production in Vietnam is actually expected to fall to 29.5% by 2020, and to 15.5% by 2030. This is because the government plans to boost coal thermal energy production at an even greater pace. By 2020 it is expected to account for 49.3% of total electricity production, and 55% by 2025. [7]

While the relative cost of investing in and operation of thermal power is cheaper, the process would result in large discharges of solid waste and waste gas. These would be harmful to the environment in the absence of proper environmental measures, such as dust and gas filter systems and flue-gas desulphurisation facilities. Vietnam is also poised to develop a variety of supporting industries in order to bolster its industrial output, such as building materials, chemicals and food processing. All these activities would require heating as part of the production processes. Therefore the number of industrial furnaces and boilers required for heat production, and the resultant waste gas emissions, are set to increase.

Vietnam is therefore expected to tighten up its enforcement of official pollution controls, while also combating the emission of pollutants by various industrial parties. Authorities still need to address existing problems with untreated waste and waste water in industrial zones and urban areas. However, new sources of pollution are set to appear over the next decade in tandem with increasing economic development.

In order to meet official emission requirements, there will be more demand from Vietnamese enterprises for various types of services to help handle their waste products, whether solid waste, waste water or waste gas. Also, since new industrial setups are required to undertake environmental impact assessment, investors will have to plan for environmental facilities from the very earliest stages. This in turn will fuel demand for environmental services, such as engineering services for building of waste water and waste gas treatment systems.

Demand for Due Diligence and Environmental Services

Vietnam is still in the process of developing its own national emission standards and environmental requirements. Although processing industries have been established amid the inflows of FDI over the past decade, the country still lacks the relevant experience of law enforcement. Additionally, Vietnam is hoping to attract more high-tech and higher value-added investment. The resultant industry structure and associated environmental problems will make it more complicated for the authority to introduce appropriate standards and requirements, and to enforce the same thereafter.

Vietnam often adopts the practices of advanced countries to tackle its environmental problems, but it would take time for the government to introduce all the relevant requirements. Besides, at present the government departments in question may not have sufficient experience to manage more complex situations. As such, Vietnam is keen to invite foreign partners to develop industrial zones together with local authorities or other local partners, in order to access their expertise in environmental technology and management. Understandably, then, a prime target of the government is to favour co-operation with reputable partners whose environmental technologies meet international standards or those of advanced countries.

As such, both foreign and local investors are increasingly aware of the need to make use of environmental due diligence services in order to fulfil environmental impact assessment requirements. Not only will this benefit the initial approval of investment projects. In a worse case scenario, should inconsistencies with local conditions and unexpected environmental problems arise, the authorities could impose restrictions on the investment, or else demand further environmental assessment be undertaken after the investment was established.

There is an increasing demand among investors to minimise these business risks. They need services to help them win approval for the initial setup of their investments, and to meet on-going environmental standards and emission requirements. Obviously, services which are of a recognised international standard and reputation are preferred. This would safeguard them in the event of any environmental issues arising subsequently, and put them in a stronger position if they should face problems due to red tapes.

Hong Kong’s environmental service companies are well positioned to tap this rising demand for environmental due diligence and on-going facilities. They have advantages in providing one-stop services for foreign investors and local companies within Vietnam, covering both engineering and project management. Hong Kong companies have frequent technological exchanges with international players from Europe, the US, Japan and elsewhere. Their technical personnel are experienced in using environmental technologies which have been developed to international standards, and boast a strong reputation in the global arena. These strengths would be very significant when breaking into the Vietnamese market.

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[1] Source: Ministry of Planning and Investment of Vietnam

[2] Source: General Statistics Office of Vietnam; 2014 figures

[3] Source: General Statistics Office of Vietnam; April 2015 figures

[4] Source: General Statistics Office of Vietnam

[5] Pursuant to the Law No. 67/2014/QH13 of the National Assembly on Investment issued in November 2014.

[6] This information is cited by the Ministry of Planning and Investment of Vietnam.

[7] Source: The Government of The Socialist Republic of Vietnam, and the Vietnam news cited by the Ministry of Commerce of the People’s Republic of China

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