Ministry of Industry and Trade maintains its stance on adding losses to electricity prices

Exchange rate differences and production and business losses will still be added to the formula for calculating average retail electricity prices when the Ministry of Industry and Trade submits them to the Prime Minister.

The Ministry of Industry and Trade has just submitted a document to the Prime Minister on the draft decision to replace Decision 24/2017 on the mechanism for adjusting average retail electricity prices, after the Ministry of Justice has reviewed it.

According to the proposal, the formula for calculating the average electricity price still includes exchange rate differences, production and business losses and other costs not included in the retail electricity price. These figures are determined according to audited financial statements. EVN will propose a plan to allocate these costs, the Ministry of Industry and Trade, the Ministry of Finance, and the State Capital Management Committee at Enterprises will submit to the Prime Minister for consideration and decision.

The Ministry of Industry and Trade said that adding the above data to the formula for determining the average retail electricity price is to be consistent with the design of a competitive wholesale market and electricity prices linked to production costs, as suggested by the Government Inspectorate. The Ministry also affirmed that allowing EVN to recover production and business losses in calculating electricity prices is based on legal regulations, reality and opinions of ministries and branches.

When reviewing the draft, the Ministry of Justice requested the Ministry of Industry and Trade and the Ministry of Finance to review the regulations on the mechanism for adjusting the average retail electricity price, ensuring compliance with the Law on Prices and the Law on Electricity. In addition, this agency also requested clarification of the relationship between the cost of electricity generation of the year calculated according to the basic input parameters in the electricity generation stage and how it affects the total cost of purchasing electricity.

According to the explanation of the Ministry of Industry and Trade, the cost of electricity generation is determined based on the fuel price (coal, oil, gas) of power plants. The price of these fuels is based on the market mechanism, so when there is a big fluctuation, it will affect the cost of electricity generation of the plants. This directly affects the total cost of electricity purchase and the average retail price of electricity of EVN.

In its previous comments, the Ministry of Finance stated that the Law on Management and Use of State Capital Invested in Production and Business at Enterprises and its guiding documents do not stipulate a plan for allocating production and business losses and other costs not included in electricity prices and that the Prime Minister has the authority to decide on this content. Therefore, the Ministry of Finance proposed to remove this provision from the draft decision amending Decision 24.

Experts also said that supplementing losses and exchange rate differences requires a roadmap for allocation to avoid shocking electricity price increases.

Hanoi Electricity workers repair power lines to ensure electricity supply during the 2022 hot season. Photo: EVN — Hanoi Electricity workers repair power lines to ensure electricity supply during the 2022 hot season. Photo: *EVN*

Regarding the authority to increase prices, the draft maintains the adjustment level of 3% or more compared to the current level, then the electricity price is considered to increase. The Ministry of Industry and Trade argues that the price increase affects the macro economy, production and people's lives. If the increase is lower than the considered adjustment level, it can disrupt the psychology of businesses and people and create negative public opinion. The role of the State Capital Management Committee at enterprises is added when inspecting and reviewing the electricity price plan developed by EVN.

Thus, EVN is free to decide to increase or decrease prices below 5%. At 5-10%, the Ministry of Industry and Trade will consider and approve EVN's increase. For increases above 10%, the Prime Minister will consider and decide.

On the contrary, when the average calculated retail electricity price decreases by 1% or more compared to the current price, the electricity price will decrease and the authority belongs to EVN. This regulation is to make price reduction adjustment more transparent and avoid wasting resources when adjusting even a small reduction.

When reviewing the draft, the Ministry of Justice stated that maintaining the regulation in Decision 24/2017 on EVN's authority to adjust prices if the average electricity price is calculated to increase by 3-5% compared to the current price is not feasible. In fact, this mechanism has never been implemented.

However, according to the Ministry of Industry and Trade, in the context of current high fluctuation in fuel prices, the electricity price calculated to recover sufficient reasonable and valid costs and have appropriate profit margins is very high. Therefore, EVN's adjustment authority should be maintained to be flexible in operation, and still reflect fluctuations in input parameters according to the market.

The ministry also said that electricity prices can be adjusted many times a year . To avoid jerkiness, the drafting agency proposed to shorten the adjustment cycle from 6 months to 3 months. That is, there will be 4 price changes each year. Prices are updated quarterly according to electricity generation costs, costs not included in the electricity price. This regulation helps to manage electricity prices more flexibly and effectively with the macroeconomic situation at each time.

In addition, the annual average electricity price adjustment has also been revised to be more transparent. That is, the actual price change may be lower than the construction plan, review and inspection results of state agencies. This is to minimize the impact on the macro economy, business production and people's lives.

Associate Professor, Dr. Tran Van Binh, Institute of Management Economics (Hanoi University of Science and Technology) commented that amending the average retail electricity price mechanism in the direction of increasing and decreasing with a specific amplitude will help Vietnam move closer to the electricity market. However, with the characteristics of Vietnam's natural conditions, according to him, electricity prices will have a large difference between the dry and rainy seasons. "At this time, the frequency of fluctuations increases and decreases a lot, does EVN have the right to increase the average retail price as prescribed or is it being held back like recently?", Mr. Binh raised the question.

Mr. Binh raised concerns that the recent electricity price adjustment did not take place periodically or comply with the regulations in Decision 24/2017. According to statistics, in the period 2009-2012 when the electricity generation was not organized according to the competitive model, price adjustments were made regularly, with two adjustments in some years.

From 2013 to now, when the competitive electricity market has been operating, the market nature of transactions in the electricity source has increased, but the frequency of price adjustments has decreased. For example, from 2017 to now, electricity prices have been adjusted 3 times, in 2017 (increased by 6.08%), in 2019 it was 8.36%. This price has been maintained for 4 years, until May 2023 when it will increase by 3%.

Mr. Minh

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