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Vietnam Electrical energy (generally known as EVN) is Vietnam’s state-owned electrical utility and offers nearly all of energy to residential, industrial, and industrial clients within the nation. Based on latest reporting, the utility can be posting enormous losses and will run out of money as early as Might of this yr with mixed losses for 2022 and 2023 anticipated to achieve almost $4 billion.
The image has modified a lot from only a few years in the past in 2020, when EVN posted after-tax earnings of VND 14.4 trillion (greater than $600 million) and ended the yr with VND 55 trillion (about $2.3 billion) in money readily available. The Institute for Vitality Economics and Monetary Evaluation famous that EVN got here by 2020 “in surprisingly good monetary well being in comparison with many Southeast Asian friends.” Why did the utility’s monetary situation change so drastically in such a brief interval?
Probably the most instant trigger was the COVID-19 pandemic. 2020 was a very good yr for EVN, partially, as a result of electrical energy demand moderated. Within the years previous the pandemic, electrical energy demand in Vietnam was rising by between 9 % to 11 % yearly. In 2020 demand grew by solely 3 %. This deceleration was a world phenomenon, as a lot of the world went into lockdowns that yr.
Due to this, the value of power inputs like coal was very low for some time. With slower progress on the demand aspect, EVN might procure or generate a bigger share of electrical energy from sources like hydropower and the coal that it did have to burn was pretty low-cost. This was a very good factor for EVN’s margins. Nevertheless it was solely non permanent.
In 2021, world demand for power inputs like coal not solely revived, however method outpaced provide, and the value of coal shot up in 2021 and 2022. For Vietnam, which imports plenty of coal and has many coal-fired energy crops that burn it, the price of producing electrical energy abruptly turned very costly. And that is an particularly acute problem in Vietnam, because of the construction of its electrical energy markets.
Vietnam is within the technique of trying to maneuver from a closely state-controlled economic system to 1 with extra pro-market options. Electrical energy has been a precedence space the place the federal government needs the personal sector to play an even bigger position. They need this, no less than partially, as a result of electrical energy era could be very capital-intensive and the market might be an environment friendly method of elevating cash to finance large-scale investments.
However any transition from state to market is difficult. 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 corporations produced 57.5 % of Vietnam’s electrical energy in 2020, with the rest coming from personal corporations and imports.
There may be certainly extra personal sector exercise within the sector now than there was previously, together with a nascent wholesale market. However EVN stays overwhelmingly the biggest and most necessary participant at each stage. The state is reluctant to scale 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 believe 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 principally 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 end result is large working losses and depletion of money reserves.
It seems 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 below. However with financial progress projected to require large investments in grid infrastructure and producing capability within the coming years, a liquidity crunch at the moment might complicate issues.
You may consider EVN’s monetary troubles as a failure of administration or coverage. However in actuality, the utility is serving the operate the state needs it to, which is to buffer customers from large worth shocks. It was most likely unwise to attend till they had been almost out of money to think about elevating retail charges, nevertheless it does draw a line below 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.
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