Power prices unlikely to be brought down by competitive market

Under Decision No. 24/2011/QD-TTg of the Prime Minister, the electricity price will be adjusted in accordance with the market mechanism from June 1, 2011.

However, whether the power price would be run under the competitive price or not is still something doubtful, as the State-run Electricity of Vietnam (EVN) is still the monopolist and the power supply is in constant shortage. Hoang Quoc Vuong, Deputy Minister of Industry and Trade partially explained the issue at a recent press conference held in Hanoi.

Could you tell how electricity prices will operate in the market mechanism?

According to Decision 24 of the Government, we are preparing necessary infrastructure to operate a competitive electricity generation market from July 1. A perfect mechanism for the electricity market requires a long time. The electricity market will be developed in three stages: The competitive electricity generation market from now to 2014; competitive wholesale market from 2015 to 2022 and the competitive retail market from 2022 onwards.

After this decision takes effect, the Ministry of Industry and Trade will start to draft regulations and instructions on detailed electricity selling prices and price calculation mechanisms. These instructions are expected to be issued in May.

 

Is the supply enough to lower the price when we operate a competitive electricity generation market?

When the demand is greater than the supply, the nature of market competition is not clear. Moreover, the supply is not enough to bring the price down. It is noted that Decision 24 provides price adjustment in case of fluctuating inputs like exchange rate, fuel price and electricity generation structure. These three factors can be controlled. The most important significance of this market is the publicity and transparency of costs, especially those related to power plants when we operate the competitive electricity generation market from now to 2014.

In my opinion, with respect to price aspects, it is time to admit the fact that electricity is like other commercial commodities. If electricity is decided by market mechanism, it will exert a pull on investors and the supply will grow to be enough for the demand. Then, it will generate more benefits than the current context, which is typical of lower-than-cost price. Besides, it is important to raise the public awareness of effective electricity conservation and use.

According to the new decision, electricity price will be reviewed every three months. If so, will the price rise from June 1?

In principle, the electricity industry is granted the power to change prices from June 1. According to the decision, power companies will base the price on inputs that the Government stipulates (exchange rate, fuel price and production mechanism). If the average price of three inputs in March, April and May fluctuate more than 5 percent, prices will be changed from June.

At present, the circular that guides the calculation of electricity selling prices is being drafted by the Ministry of Industry and Trade. It has not been enacted and we are thus not sure that prices will be raised from June 1.

Can the electricity market be competitive when EVN is the sole trader?

EVN is responsible for stabilising and regulating the market. If it does not operate a competitive electricity generation market, the group will have to do business while inputs are driven by the market mechanism and outputs are decided by the Government. As a result, EVN will continue suffering losses. This is the reason why foreign investors did not invest in big electricity projects since 2003 and the consequence is frequent power shortage and low quality supply.

The Prime Minister requested EVN to report to the Ministry of Industry and Trade when it plans to raise the electricity price by 5 percent. If it adjusts the price by more than 5 percent, it must have specific plans which will be examined by the Ministry of Industry and Trade before submitting the final report to the Prime Minister. According to Decision 24, in case input prices fall, EVN must consider slashing the price accordingly. Thus, if input prices fall and average electricity cost price is lower, EVN may reduce the price.

Decision 24 also mentions some electricity backup strategies like building backup plants to stabilise the system and setting up an electricity price stabilisation fund as we do with petroleum. Could you tell us more about these backup plans?

According to the electricity industry restructuring plan, the Prime Minister requested the formation of three electricity generation corporations subordinate to EVN.

These corporations will be constituted by power plants using different technologies. They will have similar capacities and operate in the form of holding company. If the market goes smoothly, these corporations will be equitised. Besides the establishment of three power corporations, the Prime Minister also instructs relevant bodies to maintain multi-target hydropower plants and strategic hydropower plants to regulate the market.

The electricity price stabilisation fund will raise funds from electricity operations and will be built prudently. The Government has assigned the Ministry of Industry and Trade and the Ministry of Industry and Trade to formulate this fund. – VCCI

Tags: Vietnam electricity, Vietnam electricity prices, Vietnam energy