The Ministry of Industry and Trade has proposed amending Decree 72 to allow Electricity of Vietnam (EVN) to factor unrecovered electricity production and supply costs from 2022 onwards into the electricity price. This amounts to a loss of approximately 44,792 trillion VND as of the end of last year.

Ha Dang Son, director of the Green Innovation and Development Center (GreenID), explained that EVN's accumulated losses stem from several objective factors. These include discounted electricity prices and subsidies offered during the Covid-19 pandemic, efforts to stabilize electricity prices amidst fluctuating fuel costs and inflation, and purchasing renewable energy (solar and wind) at higher feed-in tariff (FIT) rates than selling prices.

Son believes incorporating extraordinary expenses, such as fuel price differentials or costs incurred from government policies, into the electricity price is reasonable. He suggests a compensation mechanism to provide EVN with resources for business operations and investment.

Nguyen Tien Thoa, chairman of the Vietnam Valuation Association, views EVN's losses as "pending allocation costs". He argues these costs should be gradually incorporated into the electricity price to prevent cash flow imbalances within the power sector. Thoa believes this aligns with the 2024 Law on Electricity and the Law on Prices regarding state pricing principles for goods and services.

However, experts point out that EVN's audited financial reports for 2022, 2023, and 2024 lack a detailed breakdown of the costs contributing to the loss. Relying solely on published business results raises transparency concerns regarding cost allocation and could generate negative public opinion.

"EVN needs to provide a detailed report of the costs comprising the loss and allocate only reasonable expenses to the average retail price, rather than the entire reported loss", Son suggested.

Government agencies have also requested clarification from EVN. The Ministry of Finance requires EVN to separate losses from social welfare policies and those from business operations, including scrutiny of any non-core investment costs.

The Ministry of National Defense urges the Ministry of Industry and Trade to provide a clearer explanation of EVN's losses, differentiating between costs directly related to electricity production and supply and those outside core operations. This aims to ensure transparency and prevent burdening consumers with excessive electricity price increases.

Electricity workers inspecting the system. Photo: VGP

Electricity workers inspecting the system. Photo: VGP

Representing the business community, the Vietnam Chamber of Commerce and Industry (VCCI) also calls for transparency in determining EVN's costs. "Will the cost allocation proposed by EVN be applied annually or spread out over time? If allocated over time, will electricity prices decrease after full allocation?", a VCCI representative inquired.

Allowable costs include those permitted but not yet fully incorporated into the electricity price. These comprise costs from power generation, ancillary services, transmission, distribution, retail, management, regulated profit, and dispatch.

EVN reported a loss of approximately 50,029 trillion VND between 2022 and 2023. By the end of 2024, the parent company's accumulated loss reached nearly 44,792 trillion VND. EVN claims these are direct costs for electricity production and supply not fully recovered through previous retail prices. They also stated they have divested from all non-core investments, eliminating that as a source of loss.

The Ministry of Industry and Trade acknowledges that EVN's losses primarily resulted from following government directives to mitigate the impact of the Covid-19 pandemic on society and the economy. Electricity prices remained unchanged in 2022 despite mixed coal prices increasing by 34-46% and imported coal prices rising by 163% due to the Russia-Ukraine conflict.

In 2023, coal prices continued to increase by 22-74%, and crude oil prices were 39-47% higher than in 2020-2021. A 1.9% increase in the exchange rate also pushed up the cost of importing electricity, coal, and gas. While electricity prices increased in 2023, they remained below cost-recovery levels, further increasing losses.

A Ministry of Industry and Trade inspection report from 2022-2023 confirms rising electricity production costs. In 2022, EVN lost 168 VND per kWh sold, while the average retail electricity price remained at 1,864 VND per kWh since 2019.

The situation persisted in 2023, with the production cost per kWh around 2,088.9 VND, a 2.79% increase from the previous year. The average retail electricity price, after two increases, was 2,006.79 VND per kWh, still 82-168 VND below the cost.

Unfavorable hydrological conditions due to El Nino forced EVN to maximize thermal and oil-fired power generation. The proportion of hydropower, a cheaper source, decreased from 38% to 30.5%, while coal and gas-fired thermal power increased from 35.5% to 43.8%. This further inflated costs, while output prices weren't adjusted timely.

EVN has requested prioritizing the allocation of unrecovered direct costs for electricity production and supply to fully recover operating costs and protect state capital invested in the company.

Besides clarifying the reasons for the losses, concerns exist about the impact of electricity price hikes on consumers. The Ministry of Finance has requested the Ministry of Industry and Trade to assess the impact on households and businesses and propose mitigating solutions.

The Vietnam Consumers Association cautions against incorporating 2022 costs into current electricity prices, as this could directly affect living expenses and business operations.

The Ministry of Industry and Trade stated electricity price adjustments will be based on EVN's impact assessments on users and inflation. Authorities will determine appropriate cost and loss allocations, reverting to the current pricing mechanism after full allocation.

However, due to favorable hydrological conditions in the first 7 months of the year, EVN's business performance has exceeded expectations. If the proposed amendment is approved, the year-end electricity price is expected to remain largely unchanged, or increase only slightly by 2-5%. A 3% increase from October would add approximately 0.03 percentage points to the annual CPI.

The Ministry assures that electricity price adjustments will be gradual to ensure socio-economic stability and balance the interests of businesses and consumers.

Phuong Dung