The Ministry of Industry and Trade (MOIT) is building a mechanism to adjust the average electricity price, in the direction that the retail price added the electricity production and business losses. That is a new point in the draft decision to replace Decision No.24/2017/QD-TTg of the Prime Minister on regulating the mechanism for adjusting the average retail electricity price of MOIT that has just been sent to the Ministry of Justice.
Expert Nguyen Tien Thoa
The reason why MOIT had to come up with the above solution, according to the explanation of the Electricity Regulatory Authority, is because the cost of purchasing electricity has increased, but the retail price of electricity has been kept stable, causing a loss of more than VND 26 trillion in electricity production and business results of Vietnam Electricity (EVN) in 2022.
For EVN to balance its finances, providing the solution is necessary. However, it is necessary to clarify whether the loss is caused by the business or is a consequence of the actual management of electricity prices in order to have an appropriate handling method.
Currently, any type of goods or services operates according to the market mechanism, prices are determined by the market, and businesses producing and trading those goods shall accept "profit and loss".
But electric power is so different. Electricity prices are decided by the State. Electricity prices have recently been operated according to the policy on serving the goal of stabilizing the macroeconomy, controlling inflation, and minimizing the impact on production and life, so it must be handled in the direction of "inputs for production that form electricity prices are market-based, but outputs are not".
Therefore, the electricity price did not comply with the State's pricing principles stipulated in Article 20 of the 2012 Price Law that the price must “Cover actual production and business costs reasonably, with profits consistent with the common level of market price, etc.”, and must "promptly adjust prices when factors forming prices change". This is the cause of the cash flow deficit in EVN's production and business.
In 2022, it is proved that the audited cost of electricity production and business increased by 9.27% but it is only adjusted to increase by 3% in the price.
Thus, the decision to adjust prices lower than the State's intended costs will inevitably cause negative cash flow. Therefore, it is obvious that EVN cannot preserve state capital in the enterprise.
Assessing MOIT's inclusion of EVN's losses in electricity prices, the Ministry of Finance also acknowledged: In fact, the loss from electricity production and business activities is because the revenue from electricity production and business activities is not sufficient to cover the costs incurred to serve electricity production and business activities (That is, the retail price of electricity is not sufficient to cover the cost of electricity production and business).
On the other hand, through reviewing the Law on management and use of state capital invested in production and business at enterprises and the guiding documents, no content has been stipulated in the plan to allocate losses from production and business activities and other costs not included in the retail price of electricity as well as the authority of the Prime Minister to decide on this content.
EVN itself, when commenting on the draft to replace Decision No. 24, also wanted to amend and add to the formula for calculating the average electricity price in this draft the difference in electricity production costs (of power generation stage, power transmission stage, electricity distribution - retail stage, industry operation - management stage, power plants providing power system support services, other costs) between the electricity price plan and the reality of previous years.
EVN has also wanted the draft to be revised in the direction that the average retail electricity price is adjusted annually and within the year to ensure that electricity prices promptly reflect fluctuations in input parameters that impact electricity production and business costs, avoiding the accumulation of costs leading to a sudden increase in electricity prices during one electricity price adjustment.
The nature of EVN's negative cash flow is not a loss in production and business caused by weak electricity production and business enterprises, but rather due to the State proactively regulating prices to serve the goal of macroeconomic stability. The fact that the State management agency considers the negative cash flow as a loss in production and business is incorrect.
The above deficit costs do not belong to "other costs" that have not been included in the price. Because this is the cost that has been calculated properly in the price plan of the valuation and price adjustment period. However, when deciding on a specific price, the state agency does not allow 100% of the above properly calculated cost to be decided on the electricity price but "hangs it" instead.
Therefore, the State needs to have a handling mechanism for businesses to avoid cash flow deficits.
This amount needs to be gradually allocated to the following price adjustment periods, as in the case of the Prime Minister as stipulated in Decision No. 24/2017 that the unallocated difference in the re-evaluation exchange rate is included in the cost of electricity production and business in the year of price calculation.
With the above argument, to complete the price calculation formula in Decision No. 24, it is proposed to add a new item, which is "costs awaiting allocation". That is a solution to gradually reduce EVN's losses, while still ensuring compliance with the Price Law.