World Bank specialist: Vietnam sells power below capital recovery rate

World Bank specialist said that the policy on selling electricity below capital recovery rate has made the electricity market distorted and ineffective, for example, high volume of energy intensity because of giving wrong signals to consumers about the actual cost of the service.

At an interview about electricity price issue, Mr. Franz Gerner - Senior Energy Specialist, Head of Energy Group of the World Bank in Vietnam responded that in order to assess the appropriateness of electricity-selling price, it is necessary to assess the specific cost structure of the country and the level of power supply services to consumers.

According to Mr. Franz Gerner, in the past, Vietnam had had cheap and abundant resources such as coal, oil and hydropower; Additionally, the Power, Oil and Gas and Coal - Minerals Corporations as well as private investors had effectively developed available resources in the country.

In parallel with this, the Vietnamese Government has applied a quite unified price approach, whereby revenues from selling power have been used to pay for operations as well as to pay the debt of Vietnam Electricity (EVN) and the Power sector.

In general, this price has not included the investment cost and the cost normally is covered by ODA financing or EVN’s loans guaranteed by the Government.

The specialist from the World Bank said that this approach method had succeeded in the past, had contributed to the macroeconomic development of Vietnam and helped to operate the economy with a relatively-cheap energy source. The electricity price policy of the Government also ensured that EVN and the Power sector were continuously profitable and financially stable; evidence was that EVN had achieved the BB credit standing recognized by Fitch Assessment Organization in June 2018.

"However, the policy of selling electricity below capital recovery rate has made the electricity market distorted and ineffective, for example, high volume of energy intensity because of giving wrong signals to consumers about the actual cost of the service", he emphasized.

Specialist of the World Bank said that the current situation of Vietnam had significantly changed. Firstly, the majority of cheap domestic resources had been maximized in terms of capacity, especially oil and gas and hydropower. Vietnam was increasingly relying on more expensive imported fuels such as coal and natural gas.

Vietnam has become a middle-income country and the Power sector has no more opportunities to access preferential financial resources as much as before. The Government has been increasingly directing the Power sector towards market-oriented forms of capital mobilization instead of using ODA and government guaranteed loans.

The investment cost for the Power sector’s development in the future - estimated at USD 8 billion per year - will be included in power-selling revenue from power distribution companies to consumers. The expected increase in retail electricity price of 8.4% or 8.1cents/kWh is a right direction.

However, according to Mr. Franz Gerner, future electricity price are required to fully recover all the Power sector's costs (operation, maintenance and investment cost, debt repayment obligations) by the revenue from selling electricity and this price was expected to average about 11-12 cents/kWh.

Answering the question about the  electricity selling price for the industrial sector, Mr. Franz Gerner said that Vietnam was one of the economies with the highest intensity of power use in East Asia and the manufacturing industry used more than 50% of total production power output.

A recent research by the World Bank shows that effectively using energy in industries, trade, and living activities can reduce the need for 10GW of new generated power. The Government is considering policies and incentive measures for production enterprises to invest in effectively using energy.

In this context, it is important for the government to gradually switch the implementation form of effectively using energy from encouragement for voluntary manner to compulsory one, accordingly, setting targets of effectively using energy for each industry with an incentive and penalty mechanism for completing or not completing this target.


  • 18/03/2019 04:20
  • evn.com.vn