More transparency and efficiency
“On the way towards a completely competitive power market in 2009, retail electricity price currently shows its disadvantages in discouraging economic efficiency and foreign investment as well as misrepresenting real costs”, said Pham Manh Thang, the head of ERAV, at the conference which announced the study result in the approach on designing price for retail electricity in mid November. Currently, all stages from generating, transmiting and distributing electricity is owned EVN on the basic that selling it wholesale to distributing companies within EVN so that they re-sell with retail price to the market. That’s why it’s impossible to separate all stages to define costs. Besides, accounting by cross discounting is privately executed inside EVN which add difficulties in confining the discount.
In line with reforming power industry and establishing a power market, the new approach is to force power generating stage to be competitive, and as a result, to reduce production costs to the minimum providing that material costs are conforming to market prices. At that time, three stages, power generating, transferring and distributing, are apart, indepently accounted and in relation to sales contracts.
ERAV also creates allowed revenue accounts of distributing and retailing service on the basis effective investment and operation costs. In case distributing companies reach or even exceeds the effective goals they are allowed to hold their added revenue as a profit after transferring a part of it to customers by discounting.
Additionally, the new price listing approach can assure customers of its fairness. In other words, customers consume electricity at which level (high middle or low voltage), they only have to pay at that level of tariff. Whereas, buyers now have no idea of what level they pay at. And regarding electricity generation and distribution costs, how much electricity is used, how much the cost is. As Thang said, this approach is successfully applied in many developed countries and those countries which have the same electricity system as Vietnam.
Supporting the poor, reducing cross compensation
According to Mr.Pedro Antmann, World Bank’s Consultant to ERAV’s project, in Vietnam’s condition of power shortage and increasing demand for socio-economic development, the mechanism that is cross compensating for the first 200 kWh of consumed electricity is irregular because either high-income or middle-income consumers enjoy it. Statistics shows that poor families usually use averagely less than 100 kWh per month. But 2006’s total compensation for households reached 7,098 billion VND. Besides, current mechanism does little favour to customers for the reason that in many rural areas, people, while being offered low quality of service, have to pay a high tariff to local businesses beside EVN, or even don’t enjoy the service.
Hence, in an effort to sustain power industry’s development, and enhance Vietnam’s industries’ competitiveness, Vietnam need cut the cross compensation from manufacture tariff to households tariff as well as assure that the poor and people in rural areas enjoy power distributing service and there are enough resources for countryside electrification. In other words, to that end, Vietnam should replace the current mechanism with a more effective and supportive one as soon as possible towards “Gradually reducing to abolishing the cross compensation between manufacture and households electricity tariff” goal.
With international experiences, Pedro Antmann said that ceiling level of subsidy by 50 kWh per household per month following the new price listing approach is suitable for supporting the real poor. Thus, according to accumulating pricing approach, high-load consumers will compensate for low-load consumers, and urban consumers compensate for rural consumers.
Having shared Pedro Antmann’s idea, Pham Manh Thang, the head of ERAV, said that the Government should maintain cross compensation mechanism for groups of customers and power distributing companies through ERAV-managed S Compensation Fund (SCF). Thus, companies which do business in urban, populated areas that have high tariffs will transfer their profits to SCF; and those doing business in rural, mountainous areas that have high costs and low tariffs will balance its turnover through SCF’s transferring mechanism. As a result, while rural and remote residents are assured of electricity supply, the State also separates its public interest function from businesses’ function.
Experts state that if the new price listing approach are approved and applied on a trial in 2009, though bring difficulties and considerable impact to society, the abolishment of cross compensation in the long run will create an significant condition for enhancing Vietnam’s competitiveness in prices in access to WTO.
Nguyen Kim Anh