Power plants struggle with increasing costs and low revenues

The more they produce, the greater their loss.

This is the paradox experienced by companies that have invested in small and medium hydropower plants in the Central Highlands province of Dak Lak.

A Tin tuc (The News) bulletin report said the current distribution system based on State subsidy mechanisms have actually pushed most of these companies to the edge of bankruptcy.

Dak Lak is a province that has many hydropower plants but only one buyer – Electricity of Viet Nam (EVN), which sets purchase prices at very low levels while the plants have to pay high interest rates on bank loans.

For instance, the Hoa Long Joint Stock Company borrowed VND21 billion (US$1.03 million) to invest in the Ea M’Doal 3 Electric Plant with a designed capacity of 1.8 MW.

The plant was put into operation in 2008 and fetched an annual turnover of VND3 billion – VND4 billion.

Company chairman Phan Muu Binh said interest on the bank loan has since jumped from 11.75 per cent per year to 20 per cent.

Meanwhile, EVN had set its long-term purchase price (20-29 years) at VND400 – VND607 per kWh before 2008.

Since 2008, the cost of generating electricity has increased considerably, including the interest rates on loans, but the national power utility has kept the purchase price unchanged, Binh said.

The plant’s annual revenues were not enough to pay interest, water resource tax and wages for employees, he added.

In the dry season, the plant operates for just 10 hours a day with output at 20-30 per cent of the rainy season.

“We invest in the power plant under the market mechanism, but sell electricity to EVN under the State subsidy mechanism,” Binh complained.

The Hoang Nguyen Joint Stock Company has invested VND500 billion (US$23.8 million) in three hydropower plants: Quang Tien, Dak Ru, and Ea Kar with a total capacity of 15 MW, the report said.

VND350 billion ($16.6 million) of the investment was sourced from a loan with an annual interest rate of 10 per cent.

The company expected to take back its investment in 10 years.

With soaring bank interest rates and EVN’s price freeze, annual revenues of VND45 billion have not been enough to pay even the interest on loans that has gone up to VND70 billion.

In July 2008, the Ministry of Industry and Trade issued Decision No 18 to adjust electricity purchase contracts between small and medium hydropower plants and EVN. The decision increased the average electricity price to VND650 – VND700 per kWh.

The decision also said that during the four months of the rain season, hydropower plants that have been put into operation after 2008 could sell 85 per cent of their capacity at VND460 per kWh, and the remaining 15 per cent could be sold at VND230 per kWh.

However, the companies have complained that revenues earned during the rainy season are not high enough to offset losses incurred during the remaining eight months of the dry season.

Recently, the Dak Lak People’s Committee proposed to the Government and the Ministry of Industry and Trade that small and medium hydropower plants in the province are allowed to renew their contracts with EVN.

It said the plants should be able to sell power at 80 per cent of average price under Decision No 18 during rainy and dry seasons.

Water resources tax could be 2 per cent of the electricity price and banks should offer preferential interest rates to companies so that they can break even.

Dak lak has nine small hydropower plants with a total capacity of 58 MW that are operational. The plants, built at a cost of VND1.160 trillion ($55.2 million), generate more than 290 million kWh each year. — VNS

Tags: Vietnam electricity, Vietnam energy, Vietnam power plants