The Ministry of Industry and Trade recently submitted a draft decree to the Ministry of Justice for appraisal, outlining new regulations on average retail electricity pricing.

Electricity price adjustments every two months

The draft proposes that electricity prices be adjusted every two months, instead of the current three-month interval. Price increases would be allowed if the average retail electricity price rises by 2% or more compared to the current rate. Conversely, prices would decrease if the average price falls by 1% or more, following existing regulations.

According to the ministry, fluctuations in global coal prices from 2022 to 2024 revealed that prices can change dramatically within a month, sometimes exceeding 40%. Consequently, the current three-month adjustment period may not accurately reflect changes in input costs.

In addition to coal prices, other factors such as liquefied natural gas (LNG) costs, exchange rates, and forecasted electricity production structures can also shift significantly in short periods, necessitating timely price adjustments to minimize financial pressures on EVN.

Profit projections with new mechanisms

The draft decree introduces a mechanism for determining EVN’s annual return on equity (ROE), which is expected to be substantially higher than in previous years.

The proposed ROE is calculated as the average 12-month fixed deposit interest rate for individual customers at four state-owned commercial banks (Vietcombank, VietinBank, BIDV, and Agribank) as of September 30 of the previous year, plus the average annual consumer price index (CPI) growth rate approved by the National Assembly.

Based on December 2024 data, the pre-tax ROE is estimated at approximately 9.2%, translating to a post-tax ROE of 7.6%, according to the Ministry of Industry and Trade.

This level of profitability far exceeds EVN’s historical ROE, which typically ranged from 2% to 3%. The ministry believes this proposed rate is appropriate for helping EVN stabilize its finances, safeguard equity, and support future investments in power generation.

It also highlighted that the proposed ROE for EVN is lower than the average ROE of 10% to 12% enjoyed by independent power producers with contracts to sell electricity to EVN.

With EVN's equity capital standing at over VND 196 trillion (approximately $8.14 billion) as of 2023, the new pricing mechanism could generate pre-tax profits of VND 18 trillion ($760 million) annually, with post-tax profits reaching VND 14.9 trillion ($620 million).

Challenges to implementation

Despite the promising profit projections, EVN still faces significant financial hurdles. By the end of 2024, the company is expected to break even, but it must also address a cumulative loss of nearly VND 50 trillion ($2.08 billion) from 2022 and 2023.

Historically, price adjustment mechanisms have not been fully implemented. For example, Prime Ministerial Decision No. 24/2017 allowed electricity prices to be adjusted every six months, yet prices remained unchanged for four years due to various factors, including macroeconomic considerations.

Similarly, Decision No. 05/2024 reduced the interval between adjustments to three months, but the mechanism’s effectiveness was limited due to delayed evaluations of economic impacts and price calculations.

Given these precedents, the Ministry of Industry and Trade acknowledges that the projected profitability figures may differ from actual outcomes.

Luong Bang