Viet Nam: Small businesses become greener and more efficient

03 Jun 2010

 Man in Vietnam using an old fashion kiln
Traditional coal kiln in the village of Bat Trang, Vietnam: inefficient and highly pollutant.
(Photo: UNDP)

Small and medium enterprises are a critical part of the rapidly growing Vietnamese economy. However, their inefficient use of energy not only narrows profit margins, but also contributes to Viet Nam’s swift increase in CO2 emissions. To help green these businesses, with funding from the Global Environment Facility, UNDP and the Government of Viet Nam are helping raise awareness among managers, also providing technical and financial support to install energy-efficient technologies. The initiative promotes energy conservation in five key sectors: brick, ceramics, textiles, paper production and food processing.

“Currently, small and medium enterprises are becoming the driving force of the economy and contribute greatly to job creation,” said John Hendra, UN Resident Coordinator and UNDP Resident Representative in Viet Nam. “But the predominant use of out–of-date equipment, lack of awareness and inadequate financing options for investment hamper the production process – and the environment. This is why this initiative comes at a crucial time.”

In the past four years the project has supported more than 400 businesses, resulting in cumulative energy savings of 156 ktoe (kilo tons oil equivalent) in the five priority sectors. This means that the use of energy-efficient technologies also increased the profits of participating businesses – through direct energy savings (four to 60 percent reduction in energy cost per unit production) and by increasing the products’ quality, especially for the bricks and ceramics sector, with the use of more modern kilns.
The project’s success is directly related to alliances with the government and financial institutions. In partnership with key ministries, the goal is to establish a financial and tax incentive schemes for small and medium enterprises using energy-efficient technologies, as well as a labeling mechanism to motivate the adoption of energy-efficient measures.

Reducing risks

Part of the goals has already been met. The project encompasses a Loan Guarantee Fund to reduce the risks encountered by the financial institutions providing loans to small and medium enterprises for energy-efficiency investments. In case of default, the Fund is used to protect up to 75 percent of loans (in some exceptional cases, even 100 percent of the loan), which significantly reduces the financing institution’s risk, further encouraging loans to small and medium enterprises. To date, such guarantee Funds have given out $2.13 million in loans—more than 70 percent of all loans granted for these Energy Conservation projects and nearly half of all loans given out to small and medium enterprises.

Thanks to the Project’s support, Am Nhan from the Bat Trang village replaced two traditional coal kilns with a liquefied petroleum gas kiln. She invested VND 900 million ($56,250) in her ceramics production, of which half was self-financed and the other half was borrowed from the Viet Nam Environment Protection Fund.  As a result of the kiln improvements, Am Nhan’s production increased, her revenue more than doubled and the energy use per unit of production was cut by half.

By the end of 2011, the project aims to cover 500 small and medium enterprises, contributing to a cumulative reduction of CO2 emissions in 700 kilotons, with a cumulative amount of saved energy equivalent to 160 kilotons of oil.