Reasons for Power Price Hike

State-owned EVN is still suffering serious loss and it fails to repay debts. Hence, to attract investment for power industry and diminish financial burdens on power producers, the best solution seems to be a rise in power prices. According to a report released by the Ministry of Industry and Trade, EVN incurred a loss of VND8,500 billion in 2010 and the amount already reached VND3,500 billion in the six months of this year. For the time being, EVN still owes nearly VND10,000 billion to State-owned Vietnam National Coal, Mineral Industries Holding Corporation Limited (Vinacomin) and the Vietnam National Oil and Gas Group (PetroVietnam). Unfortunately, it is found unable to pay such debts.

 

Moreover, it is recommended that electricity prices need to be raised enough to offset investment costs for investors.

 

Currently, the average power price is VND1,242 per kWh - a rate described much below breakeven point for power producers. Electricity price in Vietnam is rated low in comparison to regional countries.

 

According to EVN, in the first eight months of the year, the total electricity output and purchased volume was 69.411 billion kWh, while the commercial electricity was 61.723 billion kWh only, which means that 7.67 billion kW was lost. Experts have pointed out that high loss percentage in transmission is also an important reason behind the high production cost.

 

Mr Duong Quang Thanh, Deputy General Director of EVN, said that it is necessary to raise the electricity price now, or EVN will continue incurring losses and Vietnam will not have capital to build more power plants. Nonetheless, analysts pointed out that helping EVN escape from losses is not the most important task at this moment because if electricity price increases, this will lead to a rise in prices of other goods and services and what the economy pays for EVN’s profit is many times more than what the group gets.

 

And if power price hike is the case, inflation is estimated to escalate in the last months of this year. When gasoline price was hiked in March, inflation soared two following months.

 

The degree of power price depends on input parameters such as exchange rate fluctuations, fuel prices and electric generation structures. If input prices increased more than 5 percent in June, July and August, the electricity price will be adjusted in September. According to Deputy Minister of Industry and Trade Hoang Quoc Vuong, all three input parameters are controllable even when the actual electricity generation plan is different from the power generation structure approved by the Ministry of Industry and Trade.

 

Indeed, these three elements do not increase much in price in the past [three] months, the ground for a price hike is thus much. For example, USD/VND exchange rate is stably pegged since April 2011 and coal and gas have fixed prices; hence, input prices increase insignificantly.

 

Higher electricity prices will increase the weight and pressures on electricity-intensive industrial users like cement, paper, steel and textile producers. If electricity prices are raised some 12 percent, each company will have to pay a handsome additional amount on energy costs. However, most users would rather accept a hike in price than incur uninformed outages which cause production stagnation. Power users recommend a reasonable hike for “mutual benefit.”

 

According to calculations by the Ministry of Industry and Trade, if electricity prices rise 12 percent, general production costs will be added 0.01 - 1.33 percent. Particularly, cement, steel and fibre producers will see production costs rise by 0.38 - 1.38 percent and tobacco, beer and package producers will have to pay 0.01 - 0.46 percent more for production. The steel industry will have pay the biggest of additional amount of 1.11 percent.

 

Mr Pham Chi Cuong, Chairman of the Vietnam Steel Association, said: “Power price hike needs to be carefully calculated and balanced. The time for price hike must be proper and information must be clear enough.”