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Experts split over power price adjustment

Update: June, 24/2013 - 10:01

The Ministry of Industry and Trade (MoIT) has proposed an adjustment of retail power prices sold to households, producers and traders.

They have urged the Prime Minister, who will make the final decision, to impose a separate power price framework for the steel and cement production sectors, with prices liable to rise as much as 16 per cent from the current average.

Viet Nam News reporters Ngoc Bich and Bich Huong spoke to experts about the issue.

What are the reasons behind the ministry's proposal? Will the new prices be applied as of July 1 as rumours have suggest?

Le Duong Quang

Deputy Minister of Industry and Trade Le Duong Quang:

First, I would like to say that it is essential to have a step by step increase in power prices in Viet Nam. At the moment it's hard to promote energy efficiency and attract investors to the power sectors, because power companies are making losses.

Having said this, the size and timing of price changes must be considered carefully. At this moment, MoIT doesn't expect things to change on July 1.

The proposal we drafted earlier this month has been made widely available so that public opinion can be gauged before the final plan is submitted to the Prime Minister.

Why do you propose that the steel and cement production sectors should pay a higher price for their power?

Quang: The idea is based on the fact that the two industries consume a large proportion of total power for production in the country. The majority of steel and cement factories are using outdated high-energy consuming technologies.

If higher power prices are imposed on them, we expect they will foster their technological innovation and thus help save energy in the long-term.

Tran Viet Ngai – chairman of the Viet Nam Energy Association:

It is necessary to regulate a separate price framework for the steel and cement production sectors because most factories in these sectors import second-hand equipment and out-of-date technology which is very power-consuming.

Currently, electricity use in industrial production accounts for 70 per cent of the commercial power supply, and a third of this comes from the two sectors.

The Government has asked them to upgrade their technology and encouraged them by supporting interest rates for banking loans, but they have mostly done nothing.

Big steel factories in France, America and the UK have their own electricity plants which serve their demand for power, but factories in Viet Nam do not have this luxury. Therefore, it is unfair for normal households who use less power to pay the same price as producers.

Pham Chi Lan – economics expert and former deputy chairwoman of the Viet Nam Chamber of Commerce and Industry:

Pham Chi Lan

I think the suggestion is reasonable. The steel sector uses 20 per cent of total electricity generated by the country at a time when the Electricity of Viet Nam (EVN)'s power supply has been unable to meet demands for the whole economy.

To improve this situation, localities should consult with power companies to make sure there is enough power for steel projects before granting licenses to investors. Otherwise, the project development will become a burden for the State in terms of power supply and other infrastructure requirements. A steel factory uses more electricity than thousands of small Vietnamese enterprises combined. Is this fair?

However, despite this, in my opinion it is not necessary to apply a separate price framework for the two sectors. Instead, EVN can propose to the Government a specific amount of power that should be provided to the sectors and regulate which factories qualify for power.

A price should be imposed accumulatively. Any discriminatory treatment of the sectors will probably cause unfair competition during an economically fragile time.

Do you think that this is a suitable time for the prices to go up? There have not been any positive signals of economic recovery, so is an increase in price really the way to solve power shortages? Are there any other solutions?

Ngai: The power prices in the region now range from around 9 cent per kWh and in Cambodia the price is 19-20 cent, so I think in comparison the prices in Viet Nam are not too high.

Low power prices mean that investors are less likely to pour money into the power sector. When prices reach 8 cent per kWh, they will be more inclined to invest.

Yes, it is predicted that the world economy will take a long time to recover. However, this means we cannot wait until the economy is completely recovered before we raise the prices.

Tran Viet Ngai

The ministry's adjustments should not cause anyone any problems if they are introduced soon. The poor and near-poor households will not have to pay much more due to the Government's support while wealthier families will still find the new prices affordable.

I predict that this year EVN will continue suffering losses because of the long-lasting drought in the south. In the dry season, EVN often has to rely on oil-fired power plants because the region is usually short of 3,000-4,000 MW. Therefore, a little increase in power prices is necessary for EVN to reduce its losses.

Lan: It is not helpful to compare power prices in Viet Nam to others in the region. Yes, our prices are lower than, say, Singapore, but the GDP per capita of Singapore is 60 times higher, and so even though power prices are higher, they are actually more affordable.

Whenever the power price rises, it will lead to the increase in prices of other commodities because power is an essential input in just about every production sector.

If a price rise is deemed necessary then it would be wise for the ministry to choose a time when inflation is low to introduce the changes. However, under the current recession, any price rise will increase the burden on both residents and enterprises.

A price hike is not the sole solution. EVN itself has to restructure, apply international rules of corporate management to save costs suitably and strengthen internal control. The establishment of healthy competition in the power market must be sped up.

For a long time there has been a lack of transparency in the power sector. The ministry should publicise the reasons why power prices should be raised to a specific level, and not any higher or lower. It should predict the factors influencing power prices to avoid many increases. It should also let people know what it has done to reduce costs.

Quang: Power loss is a damaging factor to the economy. We will find technical solutions to reduce the loss to below 8 per cent by 2015. According to EVN's report last year, the rate was 8.86 per cent. We can upgrade power sources and the national grid and repair reported damage more quickly to improve the situation.

What is the power supply situation for the rest of 2013? Why has the ministry rejected hundreds of small and medium-scale hydro-power projects and what effects will this have on EVN's capacity to provide electricity?

Quang: In the first five months of this year, power supply basically met demand, except for an incident last month on the Tan Dinh-Di Linh 500kV line which caused a blackout in 22 southern provinces for hours.

This year Ban Chat Hydro-power Plant, with two 110MW turbines, has been connected to the national grid and sixteen power transmission projects have been completed.

For the remainder of this year the power supply will be sustained, barring any severe problems such as a major natural disaster or damage at a plant.

The ministry made the decision not to develop the small hydro-power plant projects after inspections which cast doubt over their sustainability and revealed environmental concerns.

According to the ministry's calculations, we can still meet demand through seeking alternative power sources, especially clean renewable energy.

Ngai: The ministry has rejected 338 small hydro-power plants, to be exact. These plants only have a maximum capacity of 10MW, so the decision not to proceed does not influence the country's power supply.

We agree with the ministry's decision because of the negative impacts these plants would have on water resources and the environment. We have also proposed to stop the development of the 6 and 6A hydro-power plants in Dong Nai. These are medium-sized plants with a designed capacity of 200MW, but their construction requires the destruction of 400 hectare of forest. That would be hugely damaging.

President of Viet Nam Steel Association Pham Chi Cuong

It's unfair for domestic steel and cement producers, especially those who invest huge capital to upgrade their production technology. The discrimination could depress investors who are eying entering the sector. More importantly, it adds further difficulties for our enterprises who have been hit hard by the gloomy domestic real estate market in the last few years.

The Thai Nguyen Iron and Steel Joint Stock Corporation has admitted to me that if power prices increase about 7-8 per cent, it will have to pay an additional VND2.4 billion per month for electricity and consequently each tonne of steel will be VND52,000 more expensive.

It is clear that Vietnamese steel will become less competitive in the market, especially when other ASEAN member countries enjoy a tax-free agreement when exporting steel products to Viet Nam. Chinese steel enterprises are set to enjoy similar incentive in 2015 while they are receiving other support from their own Government.

Enterprises need time to upgrade their technology to be more energy efficient. The Government should issue regulations over energy consumption and produce a road map so that they can slowly adapt.

I think that if they are able to self-restructure then they can survive. If they cannot, then they will face the very real threat of bankruptcy. It seems suicidal in the meantime to push them to the edge of bankruptcy with these administrative measures. — VNS


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