Electricity giant may seek further price increase

Earlier reports showed that total losses of the Electricity of Vietnam (EVN), the country’s electricity group, were up to 31 trillion dong till this year. But these losses have not been classified into specific groups (which loss came from production and business, and which was from non-core investment), which is not convincible for the public.
“Spoiled son” was grudgingly named to EVN from the end of October 2011, along with a lot of complains on the state support to the giant. Finally, on November 19, Ministry of Trade and Industry had to announce the urgency that unless increasing electricity prices, EVN will become bankrupt, according to Vietnam Economic Forum.

The public, once more time, had to watch the electricity price increase roadmap.

Is price increase the only method to maintain an enterprise instead of tens of millions of households? Why not erasing the monopoly business of EVN by allowing private firms to buy back the group’s debts and rescuing the difficulties of taxpayers?

From the end of October after EVN was complained because of proposal of raising electricity price by 13%, there were rumours that “lobby movements” had taken place in view to legalize losses of EVN.

One week ago, it was the first time Ministry of Industry and Trade confirmed EVN’s loss of 10.162 trillion dong in electricity business among total losses of 31 trillion dong up to 2011.

The question was raised where the remaining loss of 21 trillion dong came from. Whether did those losses originate from stock and property markets?

Currently, Vietnam’s electricity selling price is 1.3 times higher than Thailand’s and 7.3 times compared with Japan’s.

According to the industry and trade ministry, the major reason leading to 2010 loss of EVN was the low output for which the group had to purchase electricity at prices of higher 3-4 times than average level and its costs were increased in the 2010 electricity plan. But the authority has not detailed how much percentage the major reason accounts for in total loss of 10 trillion dong in electricity business.

Meanwhile, it is said that 21 trillion dong was lost due to non-core investments. The amount was enough to offset their all costs.

Where was 21 trillion dong?

A lot of people living in Hanoi get used to “the story” on how much difficult if asking for jobs in EVN. The difficulty seems to be very contrary to the group’s loss status. Also they are aware of the hard salary of around 7 million dong EVN paid to each employee per month.

In the market-based economy in Vietnam, there were rumours that an ordinary employee of EVN got an income of up to 200 million dong per month or few other employees were rewarded 40-100 million dong by year end. This may be the reason that’s why it is very difficult to seek jobs in EVN.

Selling price was constituted by costs, many kinds of costs including wastage. An unnamed employee in the power sector revealed that wasting copper wires and cables alone accounted for 50% of total wire and cable volume used by his company.

So it is not amazing if wastage and loss are taking place in EVN through purchasing technology, selecting contractors, idle works, repairing or maintenance phase…In fact, loss of electricity production is different from that of electricity business while Ministry of Industry and Trade called the loss from electricity business and production generally.

An experienced expert in electricity sector said, the electricity generating cost of 918 dong per kwh took up a large proportion in the cost price of 1,180 dong per kwh; if a constitution factor accounts for more than 80% of total price, it is necessary to examine such a high cost which is reasonable or not.

Many residents did not believed in EVN’s loss from electricity business because the average purchase price is 650 dong against the average selling price of 890 dong per kWh.

In the recent past, the nickname “Spoiled son” was given to EVN, even which was repeated on an UK newspaper with a lot of comments.

Moreover, leaders of EVN still offered a request that if estimation and calculation was right, total loss difference of EVN should be included in electricity cost price. Based on this, EVN will lose 300 dong per kWh, meaning that current 1,061 dong/kwh should be plus another 300 dong/kwh!!! Therefore, the increase as estimated should be 30% instead of 13% as proposed in September.

Some senior managers in electricity industry, also said Vietnam’s electricity price remained cheap in comparison with Thailand’s 12 US cent/kwh, Japan’s 17.9 US cent/kwh.

Factually, the income pa capita of Thailand is $3,850 per year while that of Japan is $31,500 per year so the electricity prices in two countries are cheaper, much cheaper than Vietnam where the income pa capita was only $1,200 per person a year in 2010. Otherwise, Vietnam’s electricity selling price is higher 1.3 times than Thailand’s and 7.3 times than Japan’s.

With above comparison, it is harder to convince people to believe in EVN’s report.

There are two expectations at this time, or the industry and trade ministry and EVN may continue raising electricity prices, or two organizations will have to disclose information on financial status and real costs in electricity investment, other investments, wastage and loss, rewards and bonus in EVN under the support of prestigious foreign auditors.

Economist Le Dang Doanh assessed, only “spoiled son” like EVN could break a family. Thus, Finance Minister Vuong Dinh Hue’s saying “for benefits of over 80 million people rather than benefits of 11 petrol companies” are also valuable in this case.

Tags: Vietnam energy, Vietnam energy industry, Vietnam Energy sector