Policymakers are still weighing the electricity pricing policy, hesitant to raise electricity retail prices.

“Raising electricity prices is a difficult decision to make, because the move will impact the entire society and the national economy,” said Tran Dinh Thien, an economist.

The electricity prices have been unchanged since 2019, despite heavy fluctuations of input production costs. Vietnam went through s difficult period when the national economy was hurt by Covid-19, and businesses had to run at a moderate level while struggling against the pandemic.

Vietnam’s average income per capita is still at the lower average level and it needs to maintain low electricity prices to both support people and hold advantages in attracting foreign direct investment (FDI).

Thai Phung Ne, former Minister of Energy, explained that Vietnam wanted to keep low electricity prices because it wants to support people and attract FDI. However, Ne, one of the most famous experts in energy, said that power development ‘always needs to go one step ahead’ to ensure enough power for socio-economic development and people’s demand.

Power companies have incurred big losses, while many projects are facing liquidity problems.

The General Statistics Office (GSO) reported that in the first 10 months of the year, the growth rate of 2.6 percent in electricity production and distribution was a record low level in recent decades.

This can be seen clearly in a Ministry of Industry and Trade (MOIT) report. Many localities saw indicators of an electricity production and distribution decrease in the first nine months of the year in comparison with the same period last year. 

Son La, for example, reported a decrease of 25.8 percent, Ha Giang 19.8 percent, Quang Nam 19.7 percent, Lai Chau 18.5 percent, Dien Bien 17.5 percent and Lao Cai 12.2 percent.

In its report to the National Assembly Standing Committee on policies on power development in 2016-2021, the supervisory team pointed out that the electricity pricing policy showed an unreasonable electricity generation structure. After many adjustments, the electricity retail prices still cannot cover input costs and ensure reasonable profits for power generators.

The report also emphasized the lack of transparency in electricity pricing and noted that market fluctuations were not counted when defining the electricity prices applied to final consumers.

The material prices have been the same in recent years in comparison with 2020-2021. The coal import price increased by 2.97 times over 2020 and 1.3 times over 2021, while the oil price increased by 1.86 and 1.13 times, respectively.

The material price escalations have increased electricity production costs of coal-fired and gas-fired power plants, while the plants make up 55 percent of total electricity output. The electricity generation cost accounts for 82.8 percent of total electricity production costs.

Since June 2023, 21 transitional wind and solar power projects have been put into operation with average prices higher than basic prices.

The Ministry of Industry and Trade (MOIT) reported that electricity production cost in 2023 is estimated at VND2,098 per kwh, higher by VND178 per kwh than the average electricity retail price.

“If Vietnam doesn’t lift electricity retail prices to cover expenses and insists on keeping electricity prices at the lowest levels, we would have to encourage foreign invested enterprises (FIEs) to consume electricity immoderately,” Thien said.

“If so, no one will dare to invest in the power sector, including the State,” he concluded. 

The spirit of respecting market rules when defining product and service prices is highlighted in many resolutions and laws.

The Politburo’s Resolution 55 dated February 11, 2020 on orienting the national power development strategy says Vietnam has to remove all barriers to be sure that the power pricing is implemented in transparency, and that the prices are determined by the market rules.

The Law on Price also says that the prices of goods and services must be defined in a way to suit the changes of the factors that formulate the prices. The retail prices must be high enough to cover production costs and ensure reasonable profits for producers.

Luong Bang