VEPR

In the study, researchers considered the impact of rising electricity rates o­n gross domestic product and o­n the consumer price index, and found significant negative impacts.
Pushing Vietnam’s electricity rates up to regional levels would be unreasonable, the researchers concluded, since the costs of labor and materials in Vietnam continue to be lower than in neighboring countries.
The research also shed light o­n the role of Electricity of Vietnam (EVN), which accounts for 74 percent of total electricity output and holds a 100% monopoly o­n electricity transmission.
EVN is a very capitalistic and highly profitable public utility which has diverted resources to significant investments in other business sectors, e.g., telecommunications and finance, said CEPR director Nguyen Duc Thanh, who led the research team.
This suggests that EVN is able to profit from existing electricity rates, Thanh said, mentioning that the fact that electricity output is not increasing rapidly enough to satisfy increasingly high demand is more likely due to problems in management than to a lack of profitability under current electricity rate structures.
If EVN’s monopoly could be overcome and productivity in the power-generating sector increased by just 2 percent, the researchers argued, Vietnam would not need to increase the rates and might even be able to lower them by 2 percent.
"In a competitive market, the price of a product can be lowered when the productivity of the sector is raised, and this can be easily seen in the electrical sector," said Thanh.
In theory, he argued, higher electricity rates would lower demand because they would encourage households and industrial users to conserve o­n electricity. In fact, however, users are already striving to reduce costs, so higher rates simply exert economic pressure o­n companies, especially small- and medium-sized enterprises that are struggling to compete.
The head of the Institute for Development Studies, Nguyen Quang A, said that Vietnam was consuming 800kWh per capita per year, compared to 3,400kWh globally.
"Average power consumption per capita in Vietnam is less than o­ne-fifth of that in Thailand, and it is obvious that demand for power will continue to rise rapidly in the future," agreed Thanh. "What EVN needs to do now is to improve supply instead of raising rates."
A competitive environment would be a driving force for companies to expand production, he said.
Nguyen Trung, a member of the research team, also argued that, before attempting to raise electricity prices, EVN needed to demonstrate what it had been doing to increase productivity.
Quang A wondered whether high electricity costs were a direct outgrowth of EVN’s monopoly in the power sector, saying, "EVN needs to make public its figures o­n productivity and profit in recent years. There should be an independent agency to supervise EVN".

Source: Viet Nam News