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Energy sector must face up to deregulation: MoI

Update: November, 27/2006 - 00:00

Energy sector must face up to deregulation: MoI

(27-11-2006)

HA NOI — Viet Nam’s energy sector must move towards relying on competitive markets to regulate prices, as the country becomes a full member of the world’s most powerful trade organisation, according to the Ministry of Industry (MoI).

This is believed to be the only way for the sector which dominates the entire national economy to further develop, as the economy stands on the threshold of the World Trade Organisation.

One of the biggest advantages that the current energy regulatory mechanism has brought to the country has been stability in terms of price and supply.

The economy would suffer shocks if energy prices fluctuated on the basis of the international market price, without the State’s regulation. Despite increases in revenue for the power and coal sector, fluctuating prices would raise the costs of crucial economic products including cement, iron and chemicals as well as other industrial products, thus reducing their competitiveness.

Director of the MoI’s Energy and Petroleum Department Ta Van Huong said that becoming the 150th member of the WTO would mean the country would have to take a new tack on the question of power energy regulation, namely relying on the market mechanism to set energy prices.

"If we do not take this trend, it will be difficult to attract foreign investment in the energy sector. It will be a disadvantage for the sector in the context of limited capital and technology of domestic investors," Huong said.

He evaluated the ability of the sector to make this transition.

"Luckily, the oil and gas industries have got the ball rolling towards the market mechanism. Crude oil has been bought at international prices. A similar situation has come about for petroleum and oil imports," he said.

"However, it will be much more difficult for power and coal industries to switch to a new mechanism as the State’s regulatory role in these industries has been overwhelming."

According to Huong, the sector’s transition towards a competitive market-based price structure would need a gradual road map to avoid a shock to the whole economy, as it may suffer from the "domino effect" of energy price fluctuations.

To develop the sector in this way, it would be necessary to change the mind of policymakers and market participants. They should banish their worries over foreign investors benefiting, and instead consider this a good signal of Vietnamese market quality and potential, Huong said.

Another urgent issue in preparation for the trend is a legal system that can take the energy sector towards a competitive market mechanism. Such legislation would need to be completed soon.

Investment in alternative energy sources would be a sustainable way of developing competitive energy markets.

The Institute of Energy considers developing atomic energy a feasible solution to compensate for the shortage of traditional energy resources. An atomic power plant is expected to be built in central Viet Nam by 2017.

Once the country’s energy sector moves towards a competitive market mechanism, a demand-supply balance would be established, thus reducing the State’s burden of management and investment in the sector. — VNS

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