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Despite reducing power purchases from local producers, it has been revealed that Electricity of Vietnam (EVN) continued to buy electricity from external sources, including neighbouring China in the first seven months of this year.
EVN contracts compel the company to buy over-priced electricity
Prioritised sellers
Independent power producers, the state-owned Vietnam National Oil and Gas Group (PetroVietnam) and the Vietnam National Coal-Mineral Industries Group (Vinacomin), (IPPs), complained that they had been left stranded after their electricity production was snubbed by EVN.
An official from PetroVietnam Power Corp (PV Power), a subsidiary of PetroVietnam, said EVN’s power purchase from their power plant in the first seven months of the year accounted for only 91% of the plan set for the period.
Like PetroVietnam, a Vinacomin official said EVN’s power purchase from their power plants in July dropped 40% compared to June’s volume. The figure is forecast to further decrease in August as EVN, the country’s sole power distributor, would prioritise self-generated hydroelectricity.
Ta Van Huong, former Director of the Ministry of Industry and Trade’s Energy Department, explained that under the current mechanism, EVN would prioritise buying electricity from cheaper sources. The competitive power generation market, piloted beginning from July 1, also supported this pricing regulation.
According to Huong, it was reasonable for EVN to reduce power purchases from PetroVietnam and Vinacomin gas-fuelled thermal power plants as they were more costly than EVN’s hydropower.
However, the question remains why when EVN slashed power purchases from domestic sources, it continued to buy electricity from high-priced sources such as privately-owned Build Operate Transfer (BOT) power plants and from China at prices of 6-8 US cents per kWh, relatively similar to the rates offered by domestic IPPs.
For the whole year of this year, EVN is forecast to buy 4.56 billion kWh of electricity from China, 5.88 billion kWh from the BOT Phu My 3 plant and 5.38 billion kWh from BOT Phu My 2.2 plant.
EVN handcuffed by contracts
According to an expert who has experience in electricity procurement contracts, Vietnam is at a disadvantage in terms of power purchase contracts signed with Chinese partners.
Under EVN’s annual contracts with China, the group must purchase a fixed volume of electricity from the neighbouring country. Its Chinese partners will define the selling prices depending on the volume ordered by EVN. Both parties have to conform to the contract provisions, and fines will be imposed if purchase volumes vary.
In the first quarter of 2010, the China Southern Power Grid (CSG) imposed fines of nearly USD900,000 on EVN as the group unexpectedly increased its power purchases due to the fall in domestic hydropower output. However, neither the CSG nor its subsidiary was forced to pay a fine despite unilaterally cutting the electricity sold to Vietnam for 20 days.
Similarly, EVN contracts with BOT investors also include watertight provisions in terms of the selling prices and sale volumes. As a result, EVN could be fined in case of any violations.
The expert explained that EVN and PetroVietnam, however, cannot fine EVN when it slashes its power purchases as their contracts are not underwritten.