Do not prolong the maintenance of electricity prices

Mr. Nguyen Tien Thoa - Chairman of Vietnam Valuation Association, former Director of Price Management Department (Ministry of Finance), around the issue of the price bracket of the average retail price of electricity just approved in Decision No. 02/QD-TTg dated February 3, 2023, as well as the adjustment of electricity prices in the coming time to ensure large balances of the economy that are both suitable to the endurance of businesses and people, while contributing to macro stability and inflation control.

- Sir, right after the Prime Minister promulgated the "Price frame of the average retail price of electricity", the Ministry of Industry and Trade also has an explanation related to the factors affecting the cost of electricity production and business in the past time, leading to difficulties for electricity production and trading enterprises, especially EVN. From the perspective of an expert in price management - valuation, how do you see this fact?

Mr. Nguyen Tien Thoa

Mr. Nguyen Tien Thoa: Through monitoring the world economic situation in recent times, we all know that the year 2022 and now the world economic situation has many fluctuations. Under the impact of the conflict in Ukraine and the supply and demand factors in the market, the prices of fuels for power production such as coal, gasoline, and gas have all increased very high compared to before leading to a high increase in electricity prices in many countries.

In our country, the cost of fuel that we have to import to produce electricity also increases with the world price, thus causing the cost of electricity generation to increase accordingly. Calculations show that the cost of electricity generation accounts for 80% of the electricity price.

Specifically, the world coal price in 2022 has increased 6 times compared to 2020 and about 2.6 times higher than in 2021. The increase in imported coal prices has made the cost of buying electricity from factories using imported coal and power plants using coal mixed between imported and domestic coal in 2022 increase by about 25% compared to 2021. ie from about 1,635 VND/kWh to 2,043 VND kWh. As for the oil price (which is the basis for calculating gas prices for plants using gas fuels), in 2022 will increase about 2.2 times compared to 2020 and about 1.3 times compared to 2021. That price increase has made the average electricity price of gas turbine plants increase by about 11.31%, ie from about 1,620 VND/kWh to 1,843 VND/kWh.

Thus, when the cost of electricity production and business increases, while the current average selling price of electricity has remained stable from 2019 until now. This has made the current price unable to cover the cost of production and business, leading to the Electricity industry facing many difficulties. Loss in production and business is inevitable.

- Sir, with the actual movements of the market, it shows that the adjustment of retail electricity price this year cannot be delayed. In the context that both internal and external impacts on growth and inflation are very large, in your opinion, to what extent should the adjustment of electricity prices be suitable to the tolerance of people and businesses, while contributing to macro stability and inflation control?

Mr. Nguyen Tien Thoa: The actual cost of electricity production and business has increased too high, I think, it is necessary to consider adjusting the electricity selling price to an appropriate level. Otherwise, the Electricity industry will not be able to balance the cash flow, and the negative cash flow will not have money to pay, the cost of buying electricity for the generating units.

However, to what extent to adjust is a difficult question that needs to be calculated very carefully. In my opinion, if it is implemented immediately and strictly adheres to the principles of the Law on Prices - the price must ensure to cover production and business costs for the electricity industry - the adjustment of electricity prices must increase by about 15% compared to the current selling price. However, at this adjustment level, there can be quite strong impacts. Because if calculated, an increase of 15% will push inflation directly in the first round by about 0.5%, not counting the impact on the second round. And the impact on industries such as: pushing up the cost of steel production by about 0.9%; cement production cost increased by about 2.25%; the textile and garment industry increased by about 1.95%... these are the industries that use a lot of electricity.

In order to minimize the impact of electricity prices on production, life and inflation, I think it is also possible to consider dividing the adjustment schedule into two phases, with each adjustment increasing by 7-8%. With this adjustment, it pushes the inflation rate of round 1 of phase 1 to about 0.2%. After that, we calculate and monitor, if the last months of the year are favorable, the macro-economy is stable, inflation is still controlled within the set range, the second price adjustment can be made.

Proposing for the adjustment of 1 phase or 2 phases, immediate adjustment or stepwise adjustment I think that both of these calculations are in compliance with the Prime Minister's decision 24/QD-TTg in 2017. ie, EVN is regulated to adjust the price every 6 months - if the input parameters of the electricity price increase by 3% or more compared to the current selling price; while the Prime Minister adjusts the price when the average selling price of electricity is higher (10% or more)...

With the cost of the electricity industry so high, it is possible to consider and calculate to adjust. It is also possible to adjust immediately, but at the same time, drastic measures must be taken to limit the spillover effects of electricity price adjustment.

- In the context of energy prices being affected by the world, and the possibility of unusually high and unpredictable fluctuations, it is very important to ensure the production and business activities of all enterprises/all economic sectors. What recommendations do you have in management and administration as well as problems arising from these impacts?

Mr. Nguyen Tien Thoa: I think that in the situation where the objective impact has affected the domestic electricity price as we just mentioned, it is definitely necessary to adjust the electricity price. If this situation continues, the cash flow of the Electricity industry will be negative and the investment attraction of the fields of electricity generation, transmission and distribution will have unfavorable effects while we continue to have to ensure the growth of demand, electricity consumption each year increases quite high.

In such difficult circumstances, it is imperative to adjust electricity prices - it will have a negative impact on no sector, not a single sector. Like it or not, I think we still have to face it, it is important that we agree and share those difficulties, in order to have positive adaptation solutions to minimize its impact.

Therefore, I think that there are three factors involved in the market, first of all - the State must continue to implement solutions to remove difficulties for production and business in general, for electricity production and business in particular, to attract investment and develop the electricity industry.

At the same time, there must be overall solutions to control, stabilize the price level, and prevent the spillover effects of the electricity price adjustment on the price level of the economy, other goods and services that use electrical products; taking advantage of the increase in electricity prices to push up prices, affecting the target of controlling inflation.

As for the Electricity sector, it must continue to immediately and effectively implement cost-saving solutions through measures to improve efficiency and management capacity; improve production and business capacity and efficiency; save on regular expenses… Currently, I know that the Electricity industry has been saving 10% of recurrent costs, it needs to be continued and must be done aggressively. It is necessary to organize the optimal operation of the power system to make the most of hydroelectricity, which is a low-cost source, in order to contribute to reducing electricity costs.

For electricity consumers, I think there is no other way we still have to drastically apply solutions to save electricity consumption. We have to accept to the extent that electricity prices are adjusted - whether low or high - we still have to take drastic measures to save on consumption; implement the Government's electricity-saving programs. Ministries and sectors also need to have electricity consumption-saving programs.

At the same time, production and business enterprises also need to have plans and overall solutions to calculate how to reduce production costs and product costs, so that the products they produce can adapt to the market and compete with the market in terms of input prices, electricity prices, it has the impact of making prices increase.

- Yes, thank you very much!


  • 09/02/2023 09:50
  • evn.com.vn
  • 233