Power hikes a fact of life

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Báo Đầu Tư English - 30 month(s) ago 3 readings

Power hikes a fact of life

Head of the Ministry of Industry and Trade’s (MoIT) Electricity Regulatory of Vietnam Dang Huy Cuong sheds some light on Vietnam’s power price situation.

>> No proposal for power price rise, EVN says

>> Power supplier wants more price increases

The power price has hiked six-fold in the past decade, three-fold in the past two years. When will power price hikes stop?

Minister of Finance (MoF) Vuong Dinh Hue confirmed the price of some everyday commodities, including that of electricity, must be set based on market rules in 2013. This means power prices must cover all factors relevant to power generation.

However, the MoF and MoIT will consider price hikes depending on socio-economic standings in each development period, the tolerance of the economy as well as macroeconomic growth targets.

Market prices shall be set based on the volatility of input material costs, whereas losses incurred from the power sector’s non-core investment must not be taken into account with calculating power prices.

How should the power sector’s production and business activity losses be dealt with?

In 2010, Electricity of Vietnam (EVN) bought power at dear costs on the back of a long-lasting drought so it incurred losses amounting to VND8 trillion ($381 million) and VND15 trillion ($714.2 million) in losses associated with exchange rate differences. These losses, in principle, must be included into power costs since it directly relates to the sector operation.

It is likely that electricity prices will be dearer in the upcoming time. How will it impact on inflation?
As per MoF calculations, a 5 per cent electricity price hike will add 0.369 per cent to the consumer price index.

Based on market rules the price of commodities may be up and down, but power price never dropped in the past years. Is that the case?

That is because relevant input costs had never gone down, leading to a sharp hike in the power plants’ investment ratios in the past years. For instance, four to five years ago power plant developers took loans with interest rates of 13-14 per cent per year and exchange rate of around VND15,000-VND16,000 per US dollar, now they suffer from 18-19 per cent per year interest rate and import machinery, equipment with VND20,000-VND21,000 per dollar exchange rate.

Besides, all other relevant input costs have all escalated. In fact, our power price has yet to be set based on market rules. Whenever we set power price following market mechanism, we could downwardly revise the price whenever relevant input costs are eased.

Did high power rates partly come from the sector’s high loss rate?

The MoIT set out targets of keeping the [power] loss rate of 9.8 per cent in 2009, 10 per cent in 2010 and 9.5 per cent in 2011. In fact, actual loss rates were 9.57, 10.5 and 9.23 per cent, respectively. Similarly, the MoIT set out the loss rates of 9.2 per cent for 2012, 9.3 per cent for 2013, 9.24 per cent for 2014, falling to 9.07 per cent in 2015 and 8.9 per cent in 2016.

These loss rates remain high compared to those in other countries, but here we need to weigh over economic efficiency an issue, that is the money put into reducing power loss rate and what we can get in return.

Power prices for public consumption are often lower than that in production in many countries, whereas it is reverse in Vietnam. Why is that?

The price of power selling to production sector averaged VND1,304 per kWh, lower than average VND1,400 per kWh in living practice. In fact, only individuals and families using big power volumes have to pay power at dearer cost than that in production.

It is to encourage people’s usage of power in a more cost-efficient manner. Besides, since power is an input cost for most sectors, its costs could directly affect product and service charges and consumers will suffer.

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