EVN refuses Vietnamese, accepts Chinese electricity

Unlike the previous years, in the first seven months of 2011, the Electricity of Vietnam (EVN) did not buy all the electricity volume offered by domestic independent power producers (IPP). However, it still purchased power from BOT (build-operation-transfer) investors and from China in accordance with the signed contracts.

Who are the priority sellers?

The Vietnam National Oil and Gas Group (PetroVietnam) and the Vietnam Coal and Mineral Industries Group (Vinacomin) complained that they have suffered heavily because EVN has unexpectedly reduced the electricity purchasing volume from their power plants.

A representative from PV Power, a subsidiary of PetroVietnam, the electricity volume EVN bought in the first seven months of the year was just equal to 91 percent of the plan.

Meanwhile, Deputy General Director of Vinacomin, Nguyen Van Mien, did not give an explicit answer to the question about the sales to EVN, but said “EVN uses more electricity from hydropower plants this rainy season. Vinacomin’s plants would halt their operation for maintenance. Vinacomin’s electricity sales would be higher in the dry season.”

Thoi bao Kinh te Saigon has quoted its sources as saying that the electricity volume EVN bought from Vinacomin in July dropped by 40 percent from June, while the figure would decrease further since EVN prioritizes using electricity from hydropower plants.

Ta Van Huong, former Director of the Energy Department under the Ministry of Industry and Trade, explained that electricity sellers and EVN need to follow the principle that EVN will prioritizes buying electricity from cheaper sources.

PetroVietnam’s and Vinacomin’s power plants are gas-turbine or thermopower plants, which have the sale prices higher than hydropower plants’ prices, therefore, it is understandable why EVN has refused to purchase electricity from the sources.

However, the problem here is that while EVN cuts down the electricity volume purchased from domestic IPP sources, it still keeps purchasing high-priced electricity from China (it is expected that the electricity imports from China would be 4.56 billion kwh for the whole year 2011), from BOT Phu My (5.88 billion kwh), and from Phu My 2.2 plant (5.38 billion kwh). The noteworthy thing is that the prices at which EVN buys from the sources are equal to the prices offered by domestic IPPs, at 6-8 cent per kwh.

The key lies in the provisions of the contracts

An expert, who has experiences in checking the electricity procurement contracts, has pointed out that Vietnam has always been at a disadvantage in the contracts signed with Chinese partners.

Under the contracts that EVN signs with China every year, EVN will purchase a certain fixed volume of electricity from China. The seller (China) will define the sale prices depending on the output ordered by the buyer (EVN). The both parties have to follow the provisions of the contracts, and fines will be imposed on the purchase volume increases or decreases.

In the first quarter of 2010, China imposed the fine of nearly 900,000 dollars because EVN unexpectedly increased the electricity purchasing volume. Meanwhile, the Chinese partner was not forced to pay fine even when it unilaterally cut down the electricity volume sold to Vietnam for 20 days.

Similarly, the contracts that EVN signed with BOT investors also include very watertight provisions in terms of the sale prices, the minimum and maximum sale volumes, under which EVN will be imposed fine in case it breaks the contracts.

A question has been raised that why Vinacomin and PetroVietnam cannot impose fines on EVN when it unexpectedly cuts down the electricity purchasing volume. “The problem is that the contracts signed with Vinacomin and PetroVietnam are not the contracts on product underwriting, therefore, none of them can punish EVN,” the expert explained.

Meanwhile, the unclear provisions of the contracts have been explained by the easy-going way of doing business of Vietnamese enterprises in the market which still lacks transparency.

Source: TBKTSG

Tags: Vietnam electricity, Vietnam energy, Vietnam power shortage