VietNamNet Bridge – A fierce debate has been raised in response to the recent release of the UNDP’s report on the energy situation in Vietnam. The report, conducted with the support of some Vietnamese research institutions, says the government spends $1.2-4.5 billion a year for fuel subsidies.

Part 1: The reasons of the report’s compilers

The report cited the International Energy Agency’s statistics, which assert that the amount of money for fossil fuel subsidization in Vietnam was between $1.2 and 4.5 billion per year during the period of 2007-2012.In 2011, for example, the subsidization rate averaged 15.5 percent, or $46.7 per capita.

According to Nguyen Manh Hai, a researcher of the Central Institute of Economic Management (CIEM), a member of the compilation team, though the state does not pour any dong into any subsidization funds, the subsidies have been implemented in different ways.

The state, for example, controls wholesale and retail selling prices, and allows power generators to access official credit from state-owned commercial banks at preferential interest rates. It also guarantees loans for enterprises, or give bailouts to unprofitable enterprises, and allows corporate income tax remissions. Power generators rarely have to pay for social and environmental fees.

The power market has been controlled by state-owned enterprises. As the enterprises have to sell products at below the ceiling prices as requested by the State, accepting lower profits or losses, they would be crippled with debts. In this case, the government has to compensate their losses.

Official sources have disclosed that the total debt incurred by the three biggest power corporations, including PetroVietnam (oil and gas), EVN (Electricity of Vietnam) and Vinacoal (coal mining) reached VND316 trillion by 2012, or $15 billion, amounting to one-quarter of state-owned enterprises’ total debts.

Power generation plants, mostly EVN, can buy input materials – coal and gas – at prices much lower than world market prices. Vinacoal, for example, had to sell coal to electricity generators at a price just equal to 60 percent of the export price in 2012 and 70 percent of the production cost.

In 2013, the coal price applied to power generators was equal to the production cost, but it was still lower than the world’s price.

Coal and gas subsidization allows power companies to generate electricity at low production costs, since coal and gas provide 55 percent of the input materials needed by power plants.

Electricity price in Vietnam is the lowest in the region

The report also pointed out that the power price in Vietnam is lower than that in other regional countries.

The electricity retail price has been increasing significantly since 2007. However, if one assesses prices based on 2002’s consumer price index, the price of electricity remained nearly flat in the period of 2008-2013, while it was lower than in 2002-2007.

The average electricity price rose from 4.6 US cents in 2002 to 7 US cents in 2013, a very modest increase when compared against world price increases.

In 2011-2012, electricity prices were 8-9 US cents in South Korea, Taiwan and Indonesia, 10 US cents in Thailand, 11 US cents in Malaysia and 20 US cents in the Philippines. Electricity subsidies of 36-54 percent were implemented in all the countries, except the Philippines.

In 2012, China sold electricity to households at 8 US cent per kwh. The prices were 12 US cents in the US, 20 US cents in the EU and 26 US cents in Japan.

Citing the figures, Michaela Prokop, the advisor to UNDP, noted that Vietnam is the country with the lowest electricity prices in the region.

TBKTSG