Power firms may be given more freedom in pricing

Vietnam may allow power companies to adjust prices on a quarterly basis as the country plans to create a more market-based pricing scheme for its power sector.

According to new regulations drafted by the Ministry of Industry and Trade, power wholesalers will be allowed to raise their prices accordingly if production costs increase by more than 1 percent from the previous quarter. In case of a price hike of more than 10 percent, the government will take measures to stabilize the market.

Power companies will be required to set aside parts of their profits for a price stabilization fund which will be used to offset future losses when production costs surge. The fund resembles a stabilization fund used by fuel traders.

Vietnam’s government currently allows power prices to change once a year. The most recent change was a 6.8 percent hike in March based on higher input costs for power production.

The new regulations are expected to be approved by the end of this year and new power prices will be announced in March 2011.

Officials at the Industry and Trade Ministry and state power utility Electricity of Vietnam (EVN) have said that the increase will be small and will not have any significant impact on daily life or production.

According to the Vietnam Energy Association, current power prices of around 5 US cents per kilowatt-hour are not attractive enough to encourage investment in the sector, as manufacturers only earn profits at prices of about 7-8 cents per kWh.

EVN posted a loss of more than VND3 trillion in the first six months this year because retail prices were set so low, the association said.

An EVN official said a more market-based pricing mechanism could help improve the companies financial situation and make it easier to secure loans.

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Power firms may be given more freedom in pricing

Vietnam may allow power companies to adjust prices on a quarterly basis as the country plans to create a more market-based pricing scheme for its power sector.

According to new regulations drafted by the Ministry of Industry and Trade, power wholesalers will be allowed to raise their prices accordingly if production costs increase by more than 1 percent from the previous quarter. In case of a price hike of more than 10 percent, the government will take measures to stabilize the market.

Power companies will be required to set aside parts of their profits for a price stabilization fund which will be used to offset future losses when production costs surge. The fund resembles a stabilization fund used by fuel traders.

Vietnam’s government currently allows power prices to change once a year. The most recent change was a 6.8 percent hike in March based on higher input costs for power production.

The new regulations are expected to be approved by the end of this year and new power prices will be announced in March 2011.

Officials at the Industry and Trade Ministry and state power utility Electricity of Vietnam (EVN) have said that the increase will be small and will not have any significant impact on daily life or production.

According to the Vietnam Energy Association, current power prices of around 5 US cents per kilowatt-hour are not attractive enough to encourage investment in the sector, as manufacturers only earn profits at prices of about 7-8 cents per kWh.

EVN posted a loss of more than VND3 trillion in the first six months this year because retail prices were set so low, the association said.

An EVN official said a more market-based pricing mechanism could help improve the companies financial situation and make it easier to secure loans.

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Power outages to continue to grip Vietnam

HANOI, HCMC – Vietnam’s severe power shortages have shown signs of worsening as hydropower plants now responsible for around 35% of total electricity output are still in distress in the current rainy season, according to the country’s leading power firm.

Electricity of Vietnam chairman Dao Van Hung said power outages might worsen from 2012 onwards because droughts had caused 17 key hydroelectric reservoirs around the country to dry up.

Speaking to the Daily on Wednesday, Hung said protracted droughts had left a huge impact on the hydropower plants that have a combined capacity of 6,500 MW. All the power stations developed and run by EVN in the country have a total capacity of some 19,000 MW.

Late last year, EVN already warned of more severe power shortages from 2012 onwards, Hung said.

The reservoir of Hoa Binh, the country’s largest hydropower station in the northern region, has receded to danger levels as floodwater inflows have been insignificant since May this year.

The current shortage of some 23 billion cubic meters of water at this reservoir means a reduction of power generation by 1.4 billion kilowatt hours from last year, according to EVN.

This is not EVN’s fault over the power undersupply, Hung said, blaming weather and problems with mobilizing enough resources for gas-fueled and thermo-power stations.

Meanwhile, new power projects have almost come to a standstill due mainly to the chronic financing crunch while investors have shown no interest in such projects given unattractive power tariffs. EVN has therefore called for an increase in power prices to encourage investors to get involved.

“In the past three years, EVN has not been able to start work on any new power stations. We have found it impossible to raise enough investment capital as a result of the economic crisis. Earlier, we planned to build six new plants worth some VND140 trillion,” he said.

EVN is still struggling to seek some US$33 billion to develop new power sources in line with the sixth National Master Plan for Power Development already approved by the Government, he said, adding that was the consequence of low power selling prices.

In a document issued by the Electricity Regulatory Authority of Vietnam and obtained on Wednesday by the Daily, Vietnam’s power prices are much lower than in many other regional countries. The average price of power in Vietnam is about 5.5 U.S. cents per kilowatt hour.

The authority also said the low prices had rendered EVN helpless to buy power from non-EVN-member stations.

To cope with the issue, EVN is working with the Ministry of Industry and Trade over possibilities of hiking power prices from 2011.     

Hung attributed the power shortages to the rampant development of cement and steel plants which consume a great deal of electricity. EVN will ask the Ministry of Industry and Trade to direct cement and steel producers to rearrange their production schedules so as to avoid operating at peak hours.

Steel producers nationwide now consume 1,900 MW and cement producers some 1,500 MW at the moment, according to the EVN chairman.

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