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Power outages can’t be cured unless electricity prices rise
A top manager of the national electricity company, Electricity of Vietnam (EVN), acknowledges that underinvestment and too much reliance on hydropower have led to the power shortage in Vietnam.
EVN Deputy General Director Dau Duc Khoi was interviewed by Thoi bao Kinh te Vietnam
Khoi: Everyone automatically puts the blame on EVN when electricity is in short supply. They need to understand that EVN only generates 50 percent of the total electricity supply. The other 50 percent is supplied by non-EVN enterprises.
No one realizes that a lot of these power projects being developed by other firms have been slow in implementation, so therefore, investors have not delivered electricity to us as scheduled.
Of course, the implementation of some of EVN’s power projects has also been slow for many reasons, including the bad management or problems in getting access to sites. However, I can say for sure that the biggest problem is the lack of capital.
Thoi bao Kinh te Vietnam: A lot of people won’t accept that explanation, because they know that EVN still has had money to invest in projects having nothing to do with power supply.
Dau Duc Khoi: People should understand that EVN is an economic group and the Government allows economic groups to invest in many fields. Our investment in non-power fields is not big. The biggest is EVN’s investment in telecommunication, and that accounts for just three percent of our total investment capital.
Every enterprise aims to profit when doing business. However, in the first six months of this year, we have gone over six trillion dong in debt to power generators. For example, we owe three trillion dong to the PetroVietnam Power Corporation, but we still cannot arrange funds to clear our debt.
The nation’s overall power plant development programme calls for $80 billion in investment from 2005 to 2015. EVN has been assigned to secure $33 billion, while other sources are to provide $55 billion. However, to date, we have only secured some $20 billion.
The Nghi Son thermopower plant in Thanh Hoa province is 85 percent funded by the World Bank. The project should have been launched earlier this year, but it has just been started because we could not mobilize the remaining 15 percent.
TBKTVN: Most of the power projects are implemented as turnkey projects. Doesn’t that mean that the contractors have to arrange capital?
Khoi: True, most power projects have been implemented in such a ‘design-build” mode. A contractor undertakes to build a plant and they have to arrange capital as well. However, we still have to provide a part of the capital.
The most important thing right now is that investors cannot see how they can profit from power projects, and so they hesitate to invest in the power sector.
Domestic enterprises certainly cannot arrange hundreds of billions of dollars for power projects. If we do not have enough investment, we will not have enough electricity.
TBKTVN: Some experts say that EVN, as the only electricity buyer, has refused to buy electricity offered to it by other sources, and that’s a reason for the electricity shortage?
Khoi: A lot of enterprises want to sell electricity to EVN, but they all want to sell at high prices.
It has been impossible to negotiate with PetroVietnam on the electricity sale price. PetroVietnam demanded we pay it 6.8 US cents per kilowatt hour, but we are only allowed to charge consumers a maximum of 5.2 cents. Thus if we buy all the electricity that could be generated [From natural gas] at PetroVN’s Ca Mau power plant, we would lose three trillion dong a year
EVN has been paying high prices for electricity sometimes this year. In June, for example, we bought electricity generated by burning fuel oil at the O Mon, Can Tho and Hiep Phuoc power plants. It cost us 4000 dong per kWh, while we sold power at 1000 dong per kWh, so we we lost 3000 dong on each kWh we sold. Overall, EVN has lost 4700 billion dong because it has had to purchase power at high prices.
TBKTVN: EVN has promised that power cuts would stop at the beginning of July, but they haven’t. Does this mean that EVN is reducing power supply rather than take losses?
Khoi: EVN has instructed its member companies to cease power cuts as of July 1. However, if the water levels at reservoirs don’t rise, the situation will still be serious.
For quite a few years, we have taken losses during the dry season but made them up by the end of the year. The Government does not compensate for EVN if it incurs a loss.
Currently, EVN is buying electricity from China. The price last year was 4.5 cents per kWh, but now the Chinese company has raised its price to 4.8 cents. Adding in taxes and other expenses, our cost basis is 1500 dong per kwh. Every day EVN has to buy 17 million kwh, which means that on this transaction alone we are losing 5.1 billion dong a day.
We want the Government to set up a competitive power market as soon as possible. It would be a bit late if we only hav such a market by 2020. We will suffer electricity shortages up to the time we can build up a retail competitive power market.
TBKTVN: It sounds as though, according to EVN, all the reasons for the power shortage are objective. The Government recently instructed EVN to reflect on why it allowed a shortage to develop. Do you think that’s unjust?
Khoi: There’s some truth to that, but I think the Government understands us. They’re feeling pressure from the people. In reality, the Government doesn’t control the power generating companies. The business just isn’t attractive because there’s no profit to it.
At the beginning of our power development strategy, if we hadn’t given so much emphasis to hydropower, we wouldn’t have come to this current difficulty. Probably because the nation didn’t have a lot of capital, we couldn’t build as many thermal power stations as other countries.
In addition, in past years we didn’t fully appreciate the unusual impacts of the El Niño weather phenomenon – in particular this drought. When we put the Ban Ve hydropower plant in Nghe An into operation recently, there was only enough water for it to operate for four hours daily.
TBKTVN: We’ve heard that EVN is preparing to urge the Government to do away with the current monthly electricity usage pricing scheme. Why is that necessary?
Khoi: We’re issuing international tenders, and we have to accept whatever price the market sets for development of power plants. Our power prices are still much lower than in nearby countries. Now we are able to buy coal produced in Vietnam for $33 per ton, but before long we’ll have to start buying it abroad for $100 per ton – at current power prices, certainly we’ll incur heavy losses.
Foreign investors aren’t going to put up billions of dollars if they don’t expect to make a profit. If power prices stay where they are now, none will ever invest here.
The idea of petitioning to abolish the present pricing system is problematic because it isn’t fair to poor people. On the other hand, we have customers who have incomes of thirty million dong a month. They don’t want cheap power, they want reliable power, all the time.
The Government ought to subsidize a minimum level of power to people who are really poor. It’s often the case that in the mountains, we’ll provide a bit of power and collect fifteen thousand dong per family, but spend several hundred thousand dong just on hiring xe ôm (Motorcycle taxis)!
vietnamnet, TBKTVN
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