State utility EVN’s losses may be included in retail electricity prices

Exchange rate differences and production and business losses at state utility Vietnam Electricity (EVN) will be included in average retail electricity prices, according to a new draft decision.

The draft decision amending Decision 24/2017 on the mechanism for adjustment of average retail electricity prices has been submitted to the Prime Minister for approval by the Ministry of Industry and Trade (MoIT).

According to the ministry, the draft still includes regulations on the authority to reduce and increase electricity prices. The price adjustment period will be shortened from the current six months to once every three months, which means there might be four price changes per year. Electricity prices will be updated quarterly based on electricity generation costs and other expenditures that are not included in electricity prices.

However, compared to previous drafts offered for public feedback, the new one allows EVN to recover losses from electricity production and business from the previous year, said the MoIT.

Specifically, the average electricity price will include factors associated with production costs, such as exchange rate differences, losses from production and business, and other costs not yet included in retail electricity prices.

This regulation was supplemented by the MoIT at the request of the Government Inspectorate and the Commission for the Management of State Capital at Enterprises, who said that there is currently no mechanism for EVN to handle losses with exchange rate differences and other costs not being factored into retail electricity prices.

The ministry said the adjustment of the formula for calculating the average retail electricity price aims to clarify the factors associated with electricity production and business costs. It explained that the cost of fuels for electricity production skyrocketed last year due to the impact of the geopolitical situation and rising world fuel prices since the first quarter of 2022. While retail prices remained stable, EVN's 2022 loss reached $875 million, according to financial statements audited by Deloitte.

This year, fuel prices are still at a high level compared to before 2022, affecting EVN's financial balance, it said, adding that a 3% increase in the average electricity prices from May 4 has partly resolved the group’s financial and cash flow difficulties.

Decision 24/2017 does not specify the consideration of the actual cost of electricity production and business in calculating the planned electricity prices, making it difficult for EVN to recover costs and make up for its loss in the previous year.

“This will affect the development and preservation of state capital if EVN suffers long-term losses,” the MoIT noted.

According to financial statements audited by Deloitte, EVN's consolidated net revenue in 2022 was more than VND463 trillion ($19.56 billion), up 8% year-on-year. Of this, revenue from electricity sales accounted for more than 98%, while the rest came from sales of several products and services.

At the end of 2022, EVN's total assets stood at over VND666 trillion ($28.1 billion), down more than 5% compared to the beginning of the year. Of this, more than VND100 trillion ($4.22 billion) was in bank deposits, down more than VND30 trillion ($1.27 billion) compared to the previous year.