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Would a power tariff hike help EVN?

Update: February, 09/2015 - 08:08

Viet Nam Energy Association chairman Tran Viet Ngai told Nong Thon Ngay Nay (Countryside Today) his concerns about surging electricity tariffs and the power sector's solvency.

How does Electricity of Viet Nam (EVN) calculate power generation cost?

The power generation cost is the amount of money spent to produce per one kWh based on input factors like coal, oil, gas and water. It includes expenditure for human resources, operation, management, taxes and machinery depreciation. The cost also covers the payment for transmission, distribution and electricity loss. I can affirm that the electricity price cannot be calculated dishonestly.

EVN has said the power tariff is lower than production costs. Is that true?

At the end of 2014, EVN declared annual losses up to VND16,800 billion (US$786.9 million), which have not been taken into account in the power tariff. If we add this amount to the calculation of the tariff, the power tariff is lower than production cost.

The EVN is not always at a loss. The corporation can make a profit if hydropower plants produce a lot of electricity thanks to the abundance of water. However, the industry's profit ratio is rather modest compared with the capital needed for investment.

What is your opinion on EVN's production effectiveness?

EVN's production effectiveness is not high and profit is still low. This is due to the fact that EVN's power generation price is high while the electricity price is low. The corporation is burdened with debts because most of its investments are loans. Therefore, the sector should restructure and optimise investment. For example, if the electricity price were raised to 9.5 per cent or VND100 per kWh, EVN could earn only an additional VND5,000-6,000 billion (US$234.2 million-281 million).

However, EVN spends around VND130 trillion (US$6.089 billion) in investment per year. One per cent of saving in investment would be the equivalent of thousands of billions of dong.

Why doesn't the power industry invite private and foreign investors to offset the burden of investment?

It is difficult to attract private and foreign investors in this sector because the profit is too low in comparison with the expenditure.

By my calculation, we have to spend at least VND1,600-1,700 per kWh (US$0.074-$0.079) while the current power tariff is around VND1,500 (US$0.07).

Given the rising coal and gas cost, it's hard to predict when EVN will have enough capital for investment.

In your opinion, is there any way to "rescue" EVN besides raising the power tariff?

As I have mentioned earlier, raising the power tariff should be done alongside measures like restructuring and reducing production costs with a view to improving EVN's situation. Priority should be given to saving by cutting unnecessary expenditures.

It is a must for EVN to streamline its staff, which consists of around 110,000 employees. In addition, EVN should optimise expenditure for capital construction, boost power efficiency and lessen electricity losses.

Experts: Power tariff hike is not a solution

Raising the power tariff would not revitalise EVN, said Pham Minh Thuy, an economic expert from the Economic-Financial Institute.

Thuy recommended EVN reduce electricity losses and cut expenditures in an appropriate way, in addition to considering plans for equitisation and enhancing the efficiency of the sector. No matter what the power tariff increased to, it would not be enough to cover investment and would significantly affect society.

Thuy said people did not want higher power tariffs, but rather transparency. Public information on the power tariff was essential, he said; moreover, a transparent power generation cost would help consumers supervise EVN's input expenses, laying a foundation for the calculation of the power tariff. Once the electricity tariff was adjusted in accordance with market mechanisms, everyone would believe the electricity price was fair.

Echoing the idea, economist Ngo Tri Long recommended the Ministry of Finance and Ministry of Industry and Trade determine whether an increase in the power tariff was suitable by considering issues such as buying electricity from hydropower plants to reduce input costs, renovating management methods and efforts to cut electricity losses and production costs. Once the power generation cost was open to the public, there would be no more questions about transparency, Long said.

The economist advised that any rise in the power tariff be calculated carefully, as it would exert pressure on low-income earners and local businesses struggling to survive hardships caused by the international and local economic slowdown. A higher electricity price would drive up businesses' production and service costs, thus reducing their competitiveness. — VNS

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