Vietnam’s Electricity Sector Faces โFinancial Challenges, Calls for transparentโ Pricing
Vietnam’s state-owned electricity provider, electricity of Vietnam (EVN), concluded โ2023 with a critically important financial deficit, totaling VND50,000 billion (approximatelyโ $2 billion USD) due to the โฃdisparity between costs and revenue. This figure isโค further compounded by an additional VND21,800 billion (approximately $885 โmillion USD) in exchangeโ rate differences EVNโข is obligated to cover for power generation units as stipulated โin power purchase agreements.
These exchangeโฃ rate differencesโค stem from the fact that many power generation projects are โขfinanced throughโ foreign loans,andโข EVN is contractually responsible forโฃ absorbing fluctuations โขin currency exchange rates between the Vietnameseโ Dongโ (VND) and foreign currencies. โคThe resulting deficit โoccurs when theโข total cost of electricity production exceeds revenue generated from sales. EVNโ officials indicate that these costs will inevitably โneed to be reflected in electricity prices,as the company cannot sustain โขthese financial burdens indefinitely.
Despite the financial difficulties,EVN โฃrepresentatives emphasize the company โoperates 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 againstโค framing the situation simply as a “loss.” Dr.โ 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 โcommoditiesโ where businessesโข bear the consequences of market fluctuations,electricity pricing โin Vietnam is state-resolute,balancing economic and social considerations.
Betweenโ 2022 and 2023, retailโ electricity prices were maintained โขVND135-149 per kilowatt-hour (kWh) below actual โproduction costs. This wasn’t a loss, but a deliberate decision to prioritize broader โnational economicโฃ goals, temporarily excluding certain cost โขcomponents permitted under the Electricity Law.
Thoa stresses the importance of โคtransparency in addressing โthe VND44,000 billion deficit. He advocates for a careful assessment of โฃall โฃcontributing factors, distinguishingโข between โcosts legally permissible for inclusion in pricing and those that are not. โฃ Furthermore, he recommendsโ a phased approach to cost โฃallocation โคto avoid abrupt and substantial price increases that could โฃnegatively โimpact consumers.
To preventโ the โaccumulation of large deficits, Thoa โsuggests aligningโ electricity price adjustments โwith โtheโ Prime Minister’s directives and implementing a more โฃfrequent โadjustmentโ schedule.He proposes quarterly adjustments, mirroring the approach used in fuel price management, toโข avoid โขsignificant price shocks.โ He โขconcludes that continued โsubsidies are unsustainable and that a market-aligned approach, where prices reflect costs, is the โonly viable โคlong-term solution.