EVN gets certain autonomy to hike electric rates

Why did the government have to change its previous decision on electricity prices?

The prime minister asked the Ministry of Industry and Trade to review and evaluate implementation of that decision (69/2013/QD-TTg) in the 2013-2016 period. The review conducted by the Ministry of Industry and Trade and the Ministry of Finance identified shortcomings that needed to be addressed, despite several positives. Specifically, the previous decision stipulates that adjustments to the average retail price of electricity will be considered if there are fluctuations in production costs.

It also says other factors will be considered on the basis of audited reports. There is no clear separation between the two, causing misunderstandings and confusion in the implementation. The new decision (24/2017/QD-TTg) enables transparency in pricing and management in line with market principles.

There were some changes in the power sector during the 2013-2016 period, like the launch of a competitive electricity generation market, policies to encourage the development of renewable energy sources, and regulations on power plants providing auxiliary services, leading to a need for a revised decision.

The old decision allowed Vietnam Electricity (EVN) to raise prices only when there was a need for a hike of at least seven percent to cover increases in costs. It was assessed that this did not allow for timely responses to fluctuations in basic costs.
The new decision allows EVN to adjust electricity prices to a certain extent – three to five percent - in compliance with the Law on Electricity and in accordance with a market mechanism orientation.

The new regulation seeks to strengthen inspection and control over electricity prices while improving transparency of power tariffs.

What are major changes in the new decision?

Decision 24/2017/QD-TTg is developed on the basis of inheritance and amendment of Decision 69/2013/QD-TTg. The decision has four new points. First, it specifies a mechanism for regulating the average electricity price in the year in line with changes in the basic input factors. Secondly, the new decision stipulates the method for setting average electricity prices, specifying components of power production and trading. Thirdly, it revises the authority for price adjustments, allowing EVN to decide on increases in average electricity price of between three and five percent. Fourthly, the new decision has several supplementary regulations on reporting, inspecting, supervising and disclosing information.

How will the government control electricity price increases?

If EVN proposes an increase of 10 percent or more, the Ministry of Industry and Trade must cooperate with the Ministry of Finance to review and examine the proposal before submitting it to the prime minister for approval. If needed, the Ministry of Industry and Trade can coordinate with the Ministry of Finance in reporting to the Steering Committee for Price Management before submitting the proposed hike to the prime minister.

Will EVN’s production and trading costs be checked and published? What happens if the government finds errors in EVN’s price calculations?

According to Decision 24, the production and trading costs of EVN and its member units have to be independently audited every year. The Ministry of Industry and Trade will cooperate with the Ministry of Finance in checking the costs of the previous year. The Central Committee of the Vietnam Fatherland Front, the Vietnam Chamber of Commerce and Industry, associations and state management agencies can be invited to take part in the inspection. The Ministry of Industry and Trade is allowed to invite independent consultants to verify reports of EVN and its member units. The results will be published so that people can participate in monitoring and supervising EVN’s production and trade activities.

If there are errors, the Ministry of Industry and Trade will have the authority to fine EVN for violating regulations on price management, fees and invoices. Specifically, EVN will be handled according to the provisions stipulated in Decree 109/2013/ND-CP on fining administrative violations in the management of prices, charges, fees, invoices, and Decree 49/2016/ND-CP dated May 27, 2016 on amending and supplementing a number of articles of Decree 109/2013/ND-CP, and other relevant legal documents (if any).