Last month, the ministry of industry and trade proposed amending Decree 72, allowing Electricity of Vietnam (EVN) to calculate and incorporate unrecovered electricity production and supply costs from 2022 onwards into the electricity price. This cost corresponds to EVN's loss of approximately 44.792 trillion VND by the end of last year.

In the third draft recently submitted to the ministry of justice for appraisal, the ministry of industry and trade proposed two specific options for handling this cost.

Option one allows EVN to allocate the unrecovered direct costs of electricity production and supply into the average retail price from 2022 onwards, after deducting profits from other activities. This mechanism could be applied in subsequent years if losses continue. This option would create proactive management but could also reduce the incentive for power companies to save and control costs, as they would be compensated through the average retail electricity price.

Option two allows EVN to address only the unrecovered direct costs from 2022 until the effective date of this decree, without applying it to subsequent years. This option would require power companies to review and tightly manage their production and business activities, minimize losses, and prevent similar situations from recurring in the future.

The drafting agency said thanks to favorable hydrological conditions in the first 7 months of the year, EVN's business results are better than expected. Therefore, if EVN is allowed to incorporate the loss into the price, the year-end electricity price level will remain almost unchanged or increase only slightly by 2-5%. In the case of a 3% increase from October, the annual CPI would only increase by about 0.03 percentage points.

The ministry also emphasized that electricity price adjustments will be implemented gradually to maintain socio-economic stability and balance the interests of businesses and consumers.

Power company employees inspect equipment. Photo: Ngoc Thach

According to the 2023 electricity production and business cost inspection report conducted by the ministry of industry and trade, EVN's total production cost is over 528.6 trillion VND. This equates to a production price of 2,088.9 VND per kWh, a 2.79% increase compared to 2022. Revenues from the liquidation and sale of fixed assets, recovered materials, and electricity pole rentals have been deducted.

Also in 2023, retail electricity prices increased twice (3% in May and 4.5% in November). With these two adjustments, retail electricity prices increased to 1,920.3 VND and 2,006.79 VND per kWh, respectively (excluding VAT). This means that despite the price adjustments, EVN still lost 82.1-168.6 VND for every kWh of electricity sold.

"The accumulated loss leads to a decrease in state investment capital in EVN, failing to preserve this capital flow," EVN's report stated. Therefore, the corporation believes this loss should be calculated and recovered through electricity prices. This aims to promptly compensate for the decrease in state investment capital in previous years, providing EVN with resources to invest in Ninh Thuan nuclear power projects, the Quang Trach power plant cluster, offshore wind power, and other power sources to ensure electricity supply for the next phase.

The mechanism for adjusting average retail electricity prices is stipulated in Decree 72. According to the ministry of industry and trade, EVN has been developing and calculating average retail electricity prices following regulations, making price adjustments more timely and flexible than before.

However, the operator admitted that this regulation needs to be reviewed and adjusted according to the 2024 Law on Electricity to ensure the principle of accurately calculating all reasonable and legitimate costs in determining and adjusting retail electricity prices to preserve and develop the business capital.

The current average retail electricity price is 2,204.07 VND per kWh (excluding VAT), following a 4.8% increase on 10/5.

Phuong Dung