Competitive distribution market unlikely to reduce power prices: experts

Prices will likely not go down because of dwindling resources and increasing dependence on imported minerals, they said.

An electricity development plan recently approved by Prime Minister Nguyen Xuan Phuc allows customers and power distributors to settle on a price without government intervention, starting in 2024.

This will end the monopoly of state-owned Vietnam Electricity (EVN), which has been the sole power distributor in the country for decades.

Industry and Trade Minister Tran Tuan Anh said at a recent meeting that the "new market mechanism" will allow electricity prices to "go up and down" instead of only rising, as in previous years.

However, experts are skeptical that prices can go down in any sustained manner.

Tran Viet Ngai, chairman of the Vietnam Energy Association (VEA), said retail prices will mostly be determined by production costs, which depend on the cost of minerals such as coal or oil.

With Vietnam becoming a net importer of coal several years ago due to dwindling domestic coal reserves, retail prices will go up and down according to coal import prices, he said.

Hydropower production has been dropping because of water shortages and this will also affect prices. In the first eight months, it fell 13 percent year-on-year, according to EVN.

Other alternative sources such as solar and wind power are becoming more popular but they cost more than thermal and hydropower. This means that retail prices are unlikely to be low whether there is competition in the market or not, he said.

Echoing Ngai, Tran Dinh Long, deputy chairman of the Vietnam Electrical Engineering Association (VEEA), said that production costs account for 60 percent of retail prices. Any changes in material prices and fluctuation of currency exchange rates will result in changes in retail prices.

"It is unlikely that retail prices will drop when there is competition in the market because there are many unpredictable factors," he said.

More choice?

But most experts agree that a competitive market means consumers can choose which distributor they want and change their decision if distributors fail to follow their commitments.

Many Vietnamese consumers expressed anger in the second quarter this year when their electricity bills doubled or even quadrupled month-on-month even without an unusual upsurge in their use.

EVN said that 3.1 million customers have recorded usage rising by between 30 and 300 percent from April to June due to rising temperatures in the north and central regions.

Several experts said they hope contentious issues like this will be resolved with a competitive market. Long said the new market mechanism will require distributors to reveal how they calculate their retail prices and try to bring the figure to the lowest possible to attract customers.

He added that a lot of work needs to be done in the next three years to build the new market mechanism, such as setting standards for measuring power consumption and creating a legal framework for distributors.