Household electricity prices still have to be cross-subsidized for production and services.
The Ministry of Industry and Trade has just sent the Ministry of Justice for appraisal of the draft decision on the structure of the new retail electricity price list, replacing Decision 28/2014 of the Prime Minister. In particular, the major change in this revision is to shorten the number of levels in the retail electricity price list for daily life from 6 levels to 5 levels.
Household electricity prices are proposed to be calculated in 5 levels and the highest level is over 3,600 VND/kWh.
Specifically, electricity users at level 1 (from 0 - 100 kWh) have a price of 1,806.11 VND/kWh; level 2 (101 - 200 kWh) has a price of 2,167.33 VND/kWh; level 3 (201 - 400 kWh) has a price of 2,729.23 VND/kWh; level 4 (401 - 700 kWh) has a price of 3,250.99 VND/kWh and level 5 (from 701 kWh and up) has a price of 3,612.22 VND/kWh. This price does not include value added tax (VAT).
Meanwhile, the average retail price of electricity according to Decision 1416 recently issued by Vietnam Electricity Group (EVN) is 2,006.79 VND/kWh (excluding VAT). Thus, the new retail price of household electricity applied to electricity users from level 2 (101 kWh of electricity or more) is higher than the average price. The cumulative increase to level 4 is 162% and level 5 is 180% of the average electricity price.
According to the Ministry of Industry and Trade, this adjustment of electricity prices is designed according to the principle of "minimizing the impact on households using electricity"; keeping the electricity price lower than the average price for users under 100 kWh of electricity/month, to ensure stable electricity prices for poor households and social policy households. In return, the high revenue from households using electricity from 401 - 700 kWh and over 700 kWh (62% and 80% higher than the average electricity price) to... offset the revenue for lower levels.
In addition, the Ministry of Industry and Trade emphasized that the advantage of this step-down adjustment plan is that it is simple and easy to understand. Combining steps together aims to increase the gap in electricity consumption between steps and widen the gap in consumption of higher steps, encouraging economical use of electricity.
Thus, the new electricity price list still maintains the viewpoint of building the current electricity price list. That is, taking electricity from households that use a lot to compensate for households that use less. Notably, the electricity price sold to production during off-peak hours is only 52 - 56% of the average retail electricity price. Thus, electricity users of 101 kWh or more not only compensate for those who use less electricity for daily life but also cross-subsidize the electricity price for production.
Previously, the Vietnam Electricity Association also suggested that it is necessary to clearly and distinctly stipulate that the budget compensates for the difference in costs due to selling electricity in rural, mountainous, border and island areas lower than the cost of electricity production and business. That is, the structure of the retail electricity price list must ensure that the price of electricity for daily life is not higher than the price of electricity for production and tourism services, and that the price of electricity for daily life is not used to compensate for the price of electricity for production and tourism services. However, the explanation of the Ministry of Industry and Trade later proposed to keep the draft content unchanged and said that the retail electricity price list will be improved in 2 phases. In which, phase 1 (the issuance of the retail electricity price structure this time) only amends the electricity price for the group of customers using electricity for non-living purposes at a minimum level, ensuring to avoid causing too much fluctuation but still solving urgent problems raised by public opinion; In phase 2 (next 2 years), the Ministry will continue to coordinate with EVN to develop a roadmap suitable for economic recovery, and report to the Prime Minister for decision.
Associate Professor, Dr. Ngo Tri Long, an economic expert, supports this 5-tier retail electricity price list because the principle of establishing electricity prices cannot be based on the average price set by the Government, so there is a progressive price list. Because electricity produced from fossil fuels and coal is limited and must be saved, the more electricity is used, the higher the price is, which is the principle in using electricity. Besides, electricity is a special but essential commodity, the State must regulate and focus on social security, support the weak, and poor families must have electricity subsidies.
"The important thing is what are the calculations of electricity consumption at each level based on? The State assigns the average price, the calculation data is used from past electricity sources, in addition to the industry's forecast to determine how much households use and what needs to be limited... However, to convince that this 5-level retail price list is reasonable, the drafting agency must analyze and explain where the current 6-level electricity price is unreasonable. The explanations must have more specific and convincing numbers, is the consumption output in line with the average price? If the explanations do not have specific data, it will be very difficult to convince and that is the key point", expert Ngo Tri Long shared.
Associate Professor, Dr. Ngo Tri Long (economic expert)
Calculating by household is not fair.
Sharing the same view on the electricity price calculated by steps, Professor Tran Dinh Long, Director of the Vietnam Electricity Institute, stated his opinion: Building a policy on retail electricity prices by steps, the State's purpose is to regulate the electricity price for people of different groups, poor households, policy households pay low prices, and people with conditions to use a lot of electricity must pay higher prices to compensate for the low-using households. The average price is regulated by the Prime Minister on the principle that the total revenue of the electricity seller does not change. Thus, the amount of electricity that EVN collects does not depend on the number of steps.
However, Professor Tran Dinh Long said that, in principle, the fewer the steps, the better for consumers, because it helps electricity users get closer to paying for their needs. According to the previously proposed roadmap, by 2024, we will begin to implement competitive retail electricity prices and gradually move towards a single price, so the step reduction must be applied sooner.
"The current retail electricity price list was established in 2014, which is a long time ago. People's electricity consumption needs have certainly changed. However, in the past 10 years, we have only been able to reduce the price by one level and maintain a high level of electricity users - in reality, it is not high, even low - having to pay higher than the average level prescribed by the Government, which has made a competitive retail electricity market far from reality," commented Professor Tran Dinh Long.
According to the draft, households using 201 kW of electricity or more must pay 36% higher than the average retail electricity price, 62% higher for 401 kWh or more, and 80% higher for 701 kWh or more. Meanwhile, with the method of calculating electricity prices by household, the electricity price policy in practice does not ensure fairness.
Professor Tran Dinh Long emphasized: "The application of electricity prices in 3, 5 or 7 levels will not change the total revenue of EVN. However, in the construction of the electricity price structure, this is the most important principle. Shortening the level by 1 level according to the Ministry of Industry and Trade is to make it easier for people to understand and apply, for example, only increasing the usage of 300 kWh or more. However, applying levels in the electricity price structure according to households makes electricity users disadvantaged. Even the policy of preferential electricity prices for poor households will not reach the poor if that household has more than 10 people, using more than 400 kWh/month... The unfairness in the electricity price is here."
I have argued many times that the retail price of household electricity should be calculated per capita, not per household; it should be calculated like the price of water, based on population. In principle, anything related to the welfare of the people should be fair.
Professor Tran Dinh Long (Director of Vietnam Electricity Institute)
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