According to Nguyen Xuan Thanh, director of the Public Policy Programme at the HCM City-based Fulbright Economics Teaching Programme, EVN had incurred massive losses from the exchange rate difference because it had to purchase electricity in US dollars at a fixed price in long-term contracts, while selling it to customers at lower prices.

"For this reason, the price hike is quite reasonable," Thanh said.

However, the 5-percet power price increase has ignited consumers' uproars, who believe EVN's poor management is the main cause for the high power prices they have to suffer.

Commenting on this, Thanh said the problem lies in EVN's price adjustment mechanism, which is regulated by the Ministry of Finance and the Ministry of Industry and Trade.

Thanh said to calculate its electricity price, EVN submits its expenses in power production, including transmission, power loss, and distribution costs, to the two ministries.

The ministries will approve the expenses and allow EVN to add a fixed profit to the expenses to arrive at the final price. The fixed profit ensures EVN's ability to cover expenses and earn profits in its operation.

While the fixed profit calculation is strictly managed, the ministries have failed to appropriately check the EVN's reported expenses, Thanh said.

Thus, EVN feels at ease to report high expenses, which are most of the times accepted by the management authorities. This loose mechanism has seriously undermined EVN's motivation to optimise its production costs, since all the losses will be counted in the final price.

"If the government still maintains this price adjustment mechanism, it should set a limit on the expenses submitted," Thanh said.

Regarding the power transmission losses, Thanh said that although EVN's power loss rate is still lower than tSTC in India or Indonesia, EVN can make it even lower.

"What matters is whether EVN is motivated to do so or not."

Sunk in non-core business investments

Cao Tien Vi, chair of Saigon Paper Co, said EVN had hiked power price due to the losses caused by its poor management and bad investment in non-core sectors.

The 5-percent hike only exacerbated the hardship of many businesses in this time of economic slowdown, Vi said, expressing concerns that power prices could soar further.

Vi called on the Ministry of Finance to inspect EVN's price calculation as well as its investment effectiveness, as in the case of the fuel wholesalers.

"This is to give the public a clearer look on EVN's power price adjustment, in order to see if the hikes are justifiable or not," he said. Meanwhile, Ta Van Huong, former head of the Energy Agency under the Ministry of Industry and Trade, said it was a huge mistake for EVN to sink investments in the telecom sector and create its affiliate EVN Telecom.

After seven years of operation, EVN telecom was stuck with low subscribers and poor revenues and became a debtor to many companies. It is set to be acquired by military-run Viettel Telecom next year.

Huong said EVN's poor management was one of the main causes of its investment failures in the telecom industry.

He thus demanded that EVN divest from its non-core businesses to cut losses and save costs.

"EVN should consider its ability before starting any investment in non-core sectors," he said.

Tuoi tre - December 26, 2011