China attempts to raise electricity price, Vietnam under hard pressure

Seriously lacking electricity, Vietnam has to purchase electricity from China. However, the partner, who will provide 4.6 billion KWH of electricity to Vietnam this year is attempting to raise the sale prices.

Chinese electricity price will soar by 15 percent?

A source from the Northern Power Company told VietNamNet that the negotiations on purchasing electricity from China stalled because of the disagreement on the price. Until now, March 2011, the contract on purchasing electricity from China has not been signed because the two sides still have not reached an agreement on the price.

Earlier this year, the company received a notice from the Chinese partner that it will raise the electricity price from 5.1 cent in 2010 to 6-7 cent per kwh. The proposed new sale price is even higher than the average retail price in 2011 in Vietnam.

The source also said that though it is still unclear about how high the new electricity price would be, the two sides have agreed that the new price would be applied as of January 2011.

However, the Electricity of Vietnam EVN has not accepted the proposed new sale price. The price increase will heavily burden the economic group, which is incurring heavy losses because it has to sell electricity at prices lower than the production costs.

The heavy losses will be increasing if EVN purchases 4.6 billion kWH of electricity from China as previous planned (or four percent of the total electricity supply) at the new prices. In the first two months of 2011 EVN bought 956 million KWH from China, an increase of 28.89 percent in comparison with the same period of the last year. In February alone EVN purchased 418 million KWH, an increase of 33.36 percent in comparison with February 2010.

In 2008, China sold electricity to Vietnam at 4.5 cent per KWH, while the price increased to 5.1 cent per KWH in 2010.

The news that China is attempting to raise the electricity price is bad news for Vietnam, especially when Vietnam plans to import electricity from China not only for one or two years, but for a long term.

Vietnam should rely on Chinese supply?

In the last 3-4 years, Chinese supply has been considered a stable supply source for Vietnam. In 2005, Vietnam only imported 200 million KWH from China and the imported electricity was only provided to two mountainous provinces Ha Giang and Yen Bai. Meanwhile, the volume of electricity purchased from China increased by 13 times in 2007.

Since 2008, the electricity from China has always been accounting for four percent of the total consumption. This is the main source of electricity supply to 12 northern provinces, including Thai Nguyen, Cao Bang, Bac Kan, Phu Tho, Vinh Phuc, Son La, Dien Bien, Lao Cai, Lai Chau, Yen Bai, Ha Giang and Tuyen Quang.

Experts say that Chinese electricity sellers strictly supervise the implementation of contracts. If Vietnam purchases less or more than the contracted volumes, it will be imposed a fine.

In the 2010 dry season, when Vietnam was seriously lacking electricity because hydropower plants did not have enough water to generate electricity, the Yun Nan Power company halted the electricity supply for 20 days due to technical problems.

EVN has many times mentioned the possibility of increasing of electricity volume it will purchase from China. This has raised worries among the public that China will make the corrupt use of the contracts to raise the electricity price continuously.

It is clear that four percent of the total supply is not an overwhelming proportion and that the proportion will not be able to control the market. However, since electricity is a kind of special commodity, if problems occur with just one percent, the security of the national energy supply will be affected. – Vietnamnet

Tags: China electricity prices