Vietnam’s Electricity Sector Faces Financial Challenges, Calls for transparent Pricing
Vietnam’s state-owned electricity provider, electricity of Vietnam (EVN), concluded 2023 with a critically important financial deficit, totaling VND50,000 billion (approximately $2 billion USD) due to the disparity between costs and revenue. This figure is further compounded by an additional VND21,800 billion (approximately $885 million USD) in exchange rate differences EVN is obligated to cover for power generation units as stipulated in power purchase agreements.
These exchange rate differences stem from the fact that many power generation projects are financed through foreign loans,and EVN is contractually responsible for absorbing fluctuations in currency exchange rates between the Vietnamese Dong (VND) and foreign currencies. The resulting deficit occurs when the total cost of electricity production exceeds revenue generated from sales. EVN officials indicate that these costs will inevitably need to be reflected in electricity prices,as the company cannot sustain these financial burdens indefinitely.
Despite the financial difficulties,EVN representatives emphasize the company operates under the regulation and supervision of state agencies and does not function as a monopoly. In response to recent deficits, EVN has implemented cost-cutting measures.
Though, experts caution against framing the situation simply as a “loss.” Dr. Nguyen Van Thoa argues that the term is misleading,as EVN’s situation is driven by policy decisions rather than typical business failures. Unlike standard commodities where businesses bear the consequences of market fluctuations,electricity pricing in Vietnam is state-resolute,balancing economic and social considerations.
Between 2022 and 2023, retail electricity prices were maintained VND135-149 per kilowatt-hour (kWh) below actual production costs. This wasn’t a loss, but a deliberate decision to prioritize broader national economic goals, temporarily excluding certain cost components permitted under the Electricity Law.
Thoa stresses the importance of transparency in addressing the VND44,000 billion deficit. He advocates for a careful assessment of all contributing factors, distinguishing between costs legally permissible for inclusion in pricing and those that are not. Furthermore, he recommends a phased approach to cost allocation to avoid abrupt and substantial price increases that could negatively impact consumers.
To prevent the accumulation of large deficits, Thoa suggests aligning electricity price adjustments with the Prime Minister’s directives and implementing a more frequent adjustment schedule.He proposes quarterly adjustments, mirroring the approach used in fuel price management, to avoid significant price shocks. He concludes that continued subsidies are unsustainable and that a market-aligned approach, where prices reflect costs, is the only viable long-term solution.