Mekong Utility Watch

ELECTRICITY OF VIETNAM: High electricity prices a drain on the economy, say Hanoi economists

Viet Nam News
November 10, 2008

Hanoi University’s Centre for Economic and Policy Research calls for more competition in electricity generation and independent checks on Electricity of Vietnam’s costs and profits before any further rate increases.

 

Higher electricity costs are slowing economic growth and driving inflation, according to a recent study conducted by the Centre for Economic and Policy Research (CEPR) at Ha Noi National University.

In the study, researchers considered the impact of rises in electricity rates on gross domestic product and on the consumer price index and found measurable negative impacts.

Pushing Viet Nam’s electricity rates up to regional levels would also be unreasonable, the researchers concluded, since the costs of labour and materials in Viet Nam continued to be lower than in neighbouring countries.

The research also cast a light on the role of Electricity of Viet Nam (EVN), which accounts for 74 per cent of electricity output and holds a 100-per-cent monopoly on electricity transmission.

EVN was a heavily capitalised and highly profitable public utility which has diverted resources to significant investments in other business sectors, e.g., telecommunications and finance, said CEPR director Nguyen Duc Thanh, who headed the research team.

This suggested that EVN was able to profit from existing electricily rates, Thanh said, mentioning that the fact that electricity output was not increasing rapidly enough to satisfy increasingly high demand was more likely due to problems in management than to a lack of profitability under current electricily rate structures.

If EVN’s monopoly could be overcome and productivity in the power-generating sector increased by just 2 per cent, the researchers argued, Viet Nam would not need to increase the rates and might even be able to lower them by 2 per cent.

“In a competitive market, the price of a product can be lowered when the productivity of the sector is raised, and this can be easily seen in the electrical sector,” said Thanh.

In theory, he argued, higher electricity rates would lower demand because they would encourage households and industrial users to conserve on electricity. In fact, however, users are already striving to reduce costs, so higher rates simply put economic pressure on companies, especially small – and medium-sized enterprises struggling to compete.

The head of the Institute for Development Studies, Nguyen Quang A, said Viet Nam was consuming 800kWh per capita per year, compared to 3,400kWh globally.

“Average power consumption per capita in Viet Nam is less than one-fifth of that in Thailand, and it is obvious that demand for power will continue rising fast in the future,” agreed Thanh. “What EVN needs to do now is to improve supply instead of raising rates.”

A competitive environment would be a driving force for companies to expand production, he said.

Nguyen Trung, a member of the research team, also argued that, before attempting to raise electricity prices, EVN needed to demonstrate what it had been doing to increase productivity.

Quang A wondered whether high electricity costs were a direct outgrowth of EVN’s monopoly in the power sector, saying, “EVN needs to make public its figures on productivity and profit in recent years. There should be an independent agency to supervise EVN.” — VNS

[PIver image here]

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