Electricity prices to be adjusted every three months

The decision, signed recently by Deputy Prime Minister Le Minh Khai, allows the adjustment of the average retail prices in the event of changes in the prices of its input costs including production, transmission, distribution, management and support services among others.

If input costs fall by 1% than the in-effect average retail price, it must be adjusted down. In the event the input costs rise by more than 3%, it can be adjusted up, with a minimum waiting period of three months between each adjustment.

The minimum waiting period between price adjustments was six months previously.

Vietnam Electricity (EVN) will be given autonomy to implement a price increase within the range of 3-5%. Within five working days since the beginning of an adjustment, the EVN must report to the Ministry of Industry and Trade (MoIT), among other ministries and governmental agencies, to form a schedule for inspection and supervision during the period.

In the event that the EVN proposes a price increase within the range of 5-10%, the EVN must report to the MoIT. Within 15 working days, the ministry, in turn, must provide the EVN with an answer.

If the EVN suggests a price hike exceeding 10%, it becomes the responsibility of the MoIT to collaborate with other ministries and government agencies on a report, which must then be submitted to the central government and the Prime Minister for evaluation.

Economist Tran Dinh Long said a shorter price period will help bring electricity prices closer to the market price. However, it is still very important to expedite the implementation of a competitive electricity market to ensure that electricity prices truly follow market principles.

Nguyen Tien Thoa, Chairman of the Vietnam Valuation Association, said a shorter price period will allow EVN to more quickly respond to changes in input costs.

"The longer they have to wait, the greater their financial losses and the chance of a shock increase," he said.

Tran Viet Hoa, Director of the Electricity Regulation Department under the MoIT, said just because theoretically the EVN can submit a proposal every three months doesn't mean they will do so. Many other aspects, including the potential impacts on macroeconomic factors and the input costs, will be considered.

Economists have long suggested that shortening the time for price adjustments is a necessary preparation step towards a competitive electricity market.