EVN monopoly slammed as power prices rise

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  Workers on an electric tower in Ha Nam Province, south of Hanoi. State utility Electricity of Vietnam raised power tariffs by 5 percent on July 1. Photo: Reuters

State-owned power utility Electricity of Vietnam (EVN) is taking a lot of flak for increasing its prices, with critics saying it is abusing its monopoly privilege.

The critics point out that EVN has frequently increased its prices, but never decreased them even when its production cost went down. The situation will persist as long as the utility enjoys a market monopoly, and can only change when a competitive retail power market is established, which is expected to happen after 2022.

Tran Viet Ngai, chairman of the Vietnam Energy Association, said, "According to the supply-demand law, power prices should decrease when the supply is ample because hydropower plants function well in the rainy season, and they should increase when the supply is thin during the dry season, when power is supplied mainly by high-cost thermal power plants. "

However, this has never happened. Prices have never been cut, he said.

"It is unreasonable. For example, EVN should not increase power prices in July. It even should lower them, as one more turbine at the big hydroelectricity plant in Son La and some other small plants have come into operation recently, providing a large supply of low-cost power."

Ngai said the situation demands that the government eliminate EVN's monopoly so that consumers have opportunities to obtain electricity at competitive prices.

A competitive power market should be soon established where local consumers can choose their power supplier with suitable quality and prices, he said.

The government plans to restructure the electricity market in three steps creating a competitive generating market by 2014, a wholesale market by 2022, and a competitive retail market after 2022.

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Ngai said the government should not wait another 10 years before breaking the monopoly in the electricity market. "The timeline is too long. Vietnam could have a competitive power retail market in the next five years," he said.

Explaining the long roadmap for the market construction, Dang Huy Cuong, head of the Electricity Regulatory Authority of Vietnam, said restructuring of the power sector is very important, so it should be done.

The effort will be accelerated if there are favorable conditions, he said, noting that many countries only develop a competitive wholesale market for electricity. The development of competitive retail markets requires "complicated infrastructure and techniques," he added.

Economist Pham Chi Lan said, "EVN now obtains more favors from the government than other firms. So, it often asks the government to allow price increases, reporting business losses," she said.

The government has subsidized the losses, and allowed EVN to increase prices, instead of forcing it to improve its business efficiency, she said.

EVN said it did not have enough capital for power production, but still poured large investments into non-core sectors like the real estate and stock market, Lan noted.

The government should hire independent agencies to supervise the monopoly's price structure, she said.

Not really open

From July 1, the competitive power generating market has been officially opened. It is expected that this will encourage a free power market and boost supply. EVN will buy power from plants that offer lower prices first.

However, Ngai of the Vietnam Energy Association said there were no changes to be seen in the market so far, and attributed this to EVN still holding a monopoly that gives it control over all stages from buying to distribution.

EVN's plants account for more than 60 percent of power supply in the market, while the rest is held by some 200 small- and medium-sized power plants.

"To have a competitive power generating market, EVN's market share in electricity supply should be reduced. In addition, some power trading and transmission firms should be separated from EVN to ensure their independent and objective operation," Ngai said.

In a meeting of small- to medium-sized hydroelectric plants held by the Vietnam Chamber of Commerce and Industry in mid-July, the heads of some power plants said the prices that EVN offers them were unchanged from 2006, standing at about VND650 (3 US cents) per kilowatt-hour, while its selling prices had increased by 57 percent to VND1,369 per kWh on average.

Offsetting losses

Vietnam raised electricity prices by 5 percent July 1 after inflation slowed for several months.

Power tariffs rose to an average VND1,369 (7 cents) a kWh from VND1,304. The increase followed a 5 percent gain in December.

Thai Van Quang, manager of a firm manufacturing machinery in Hanoi, said a 5 percent hike would have been acceptable at a different time, but it was a harsh blow for businesses right now.

The Vietnamese government has ordered EVN to gradually increase power prices and stop posting losses.

The utility has to deal with losses incurred previously within this year and the next year and ensure profits for the 2012-2015 period, according to a report on the government's website, which cited a new plan approved by the prime minister. EVN reported a loss of VND3.5 trillion ($166.4 million) for 2011.

Power prices are still subsidized by the government. Under the new plan, EVN is allowed to raise its prices and will no longer have to sell below cost in 2013.

Vietnam will seek to raise capacity to 75,000 megawatts by 2020, according to the seventh electricity master plan, approved by the prime minister last year.

The country intends to import and produce between 194 billion and 210 billion kWh of electricity in 2015, according to the plan. Production and imports will rise to between 330 billion and 362 billion kWh in 2020, the same year the country is targeting the inauguration of its first nuclear power plant.

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