Raising electricity price would mean “putting more oil into the fire”

Businesses and households are now in a state of anxious suspense after the Electricity of Vietnam proposed to raise the retail electricity price. Meanwhile, analysts comment that raising electricity price at this moment would make the situation more serious.

Electricity price hike will come contrary to the government’s plan

Right after the Circular No 31 by the Ministry of Industry and Trade, guiding the implementation of the electricity market pricing mechanism, the Electricity of Vietnam (EVN), the only electricity retailer in Vietnam, has asked for the permission to raise the electricity price from September 2011.

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.

However, analysts comment that helping EVN escape from losses is not the most important task at this moment. If the electricity price increases, this would lead to the increases of a series of other goods and services. And if this happens, the move will come contrary to the government’s plan to curb the price increases of essential goods and prevent the possible “price fever attacks” in the last months of the year.

The analysts have every reason to worry about a possible price increase wave, if the proposal to raise the electricity price is approved. Right after the increases of electricity and petroleum prices in late March 2011, the consumer price index (CPI) in the next two months skyrocketed.

The scenario would repeat now, and the inflation which has been eased a little recently, would be more serious, if the electricity price is lifted once again this year.

They have also pointed out that in the electricity pricing, it is necessary to weight the pros and cons for the sake of the whole national economy, not just for the benefit of one enterprise. For a long time, EVN has been enjoying preferences from the State, including the ones in accessing ODA (official development assistance) cheap loans. They can purchase coal and gas for power generation plants at low prices.

It is clear that the electricity price increases would bring bigger revenue to EVN. However, the price that the national economy has to pay for the profit of EVN will be heavier by tens of times.

It is really unreasonable to raise the electricity price now, when basic factors in the national economy allow to keep the prices stable. The dong/dollar exchange rate has been stable since April. The oil land petrol price increases in the world do not have big influences on the electricity price in Vietnam, because Vietnam has been relying on hydropower plants and gas and coal run power plants, while the supplies of coal and gas have been stable in prices.

What prices are right?

When proposing to raise the electricity prices, EVN always stresses that the electricity price must be the “market price”, i.e it must truly reflect the production costs based on the market conditions, instead of the prices which are below the production costs.

However, the problem is that it is still unclear about what the “market price” means, because the input costs for the electricity production remain unclear.

If comparing the current retail price in Vietnam with the electricity price at which EVN is buying from China, one would see that the retail price in Vietnam is not too low. Why has EVN still been incurring such heavy losses, then?

In fact, there are still many questions which remain unanswered. The consumption levels of input energy of thermopower plants prove to be very different. Is it because the investors use backward technologies and equipments?

The question about the investment rate also remains unanswered. Several months ago, EVN once asked PetroVietnam to help check bidding documents to find out why the thermopower plants invested in EVN are 100 million dollars more expensive than that invested by PetroVietnam.

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 merchandise electricity was 61.723 billion kwh only, which means that 7.67 billion kwh. Experts have pointed out that high loss percentage in transmission is also an important reason behind the high production cost.

Source: TBKTSG

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