Vietnam Electricity (generally known as EVN) is Vietnam’s state-owned electrical utility and offers nearly all of energy to residential, industrial, and industrial prospects within the nation. According to latest reporting, the utility can also be posting large losses and will run out of money as early as May of this 12 months with mixed losses for 2022 and 2023 anticipated to achieve almost $4 billion.
The image has modified a lot from just some years in the past in 2020, when EVN posted after-tax income of VND 14.4 trillion (greater than $600 million) and ended the 12 months with VND 55 trillion (about $2.3 billion) in money readily available. The Institute for Energy Economics and Financial Analysis famous that EVN got here via 2020 “in surprisingly good financial health compared to many Southeast Asian peers.” Why did the utility’s monetary situation change so drastically in such a brief interval?
The most fast trigger was the COVID-19 pandemic. 2020 was an excellent 12 months for EVN, partially, as a result of electrical energy demand moderated. In the years previous the pandemic, electrical energy demand in Vietnam was rising by between 9 p.c to 11 p.c yearly. In 2020 demand grew by solely 3 p.c. This deceleration was a worldwide phenomenon, as a lot of the world went into lockdowns that 12 months.
Because of this, the worth of power inputs like coal was very low for some time. With slower progress on the demand facet, EVN might procure or generate a bigger share of electrical energy from sources like hydropower and the coal that it did must burn was pretty low-cost. This was an excellent factor for EVN’s margins. But it was solely short-term.
In 2021, world demand for power inputs like coal not solely revived, however approach outpaced provide, and the worth of coal shot up in 2021 and 2022. For Vietnam, which imports a whole lot of coal and has many coal-fired energy crops that burn it, the price of producing electrical energy all of the sudden turned very costly. And that is an particularly acute subject in Vietnam, as a result of construction of its electrical energy markets.
Vietnam is within the strategy of trying to maneuver from a closely state-controlled financial system to 1 with extra pro-market options. Electricity has been a precedence space the place the federal government needs the personal sector to play an even bigger position. They need this, at the very least partially, as a result of electrical energy era could be very capital-intensive and the market could be an environment friendly approach of elevating cash to finance large-scale investments.
But any transition from state to market is sophisticated. EVN and its subsidiaries nonetheless management the era, transmission and distribution of the overwhelming majority of electrical energy in Vietnam. EVN and its three producing firms produced 57.5 p.c of Vietnam’s electrical energy in 2020, with the rest coming from personal firms and imports.
There is certainly extra personal sector exercise within the sector now than there was up to now, together with a nascent wholesale market. But EVN stays overwhelmingly the most important and most vital participant at each stage. The state is reluctant to cut back its management over a crucial nationwide operate – on this case the manufacturing and distribution of electrical energy – and provides extra affect to non-public sector actors. And I feel the utility’s latest monetary woes truly assist us perceive why that is the case.
When producing prices started spiking in 2021, there have been mainly three choices for EVN and its sole shareholder, the federal government of Vietnam. The prices might be handed onto customers. They might be absorbed by EVN. Or some mixture of the 2. They went with the second choice, and the state refused to lift electrical energy costs during the last a number of years. When prices rise and income doesn’t, a probable final result is huge working losses and depletion of money reserves.
It appears to be like just like the retail worth of electrical energy in Vietnam will certainly go up quickly. And with the worldwide worth of power inputs like coal falling, EVN ought to see its working deficit shrink. I’m fairly sure the Vietnamese authorities will on the finish of the day cowl EVN’s working shortfalls and won’t let the utility go underneath. But with financial progress projected to require huge investments in grid infrastructure and producing capability within the coming years, a liquidity crunch presently might complicate issues.
You would possibly consider EVN’s monetary troubles as a failure of administration or coverage. But in actuality, the utility is serving the operate the state needs it to, which is to buffer customers from huge worth shocks. It was in all probability unwise to attend till they have been almost out of money to think about elevating retail charges, however it does draw a line underneath the intricate stability between state and market in lots of rising economies, and the advanced political and financial trade-offs concerned in managing that stability.
Source web site: thediplomat.com
