VIETNAM: Power Cuts Prompt Privatisation but Tariffs Are Worrisome

By IPS Correspondents Reprint | | Print |

Tran Dinh Thanh Lam

Ho Chi Minh City, Jul 15 2005 (IPS) - Asked to explain in the National Assembly recent severe power shortages, Minister for Industry Hoang Trung Hai lamely talked about ”unpredictable weather developments”, ”unseen surge demand” and ”belatedness of some power projects”.

However the elders and experts were not impressed and suggested that the real reason for the failures was the monopoly enjoyed by Electricity of Vietnam (EVN), the state utility that supplies power to the whole nation.

”I think EVN has some questions to answer,” Nguyen Manh Hien, former director of EVN’s Energy Institute told IPS in an interview.

Recent droughts parched central and northern Vietnam, causing low water levels in hydro-electric reservoirs, and leading to power shortage that affected the daily life of millions of families.

Dried reservoirs in Quang Tri and Quang Binh central provinces were unable to feed irrigation systems, while Hoa Binh reservoir, the biggest water reserve in the north, had water levels 40 cms lower than ”dead level”.

Consequently, the Hoa Binh power plant had to cut operations of two of its eight turbines, and could only supply electricity occasionally to some 12 million families that live in the region.

The EVN has called upon people nationwide to save power by turning off unnecessary electrical equipment. It also resorted to rotational power- cuts in the northern cities and provinces.

”It is not done for the EVN to simply tell people that they have to suffer blackouts because it does not generate enough power,” Hien said adding that recent power cuts have caused losses three million dollars a day to the national economy.

Hien blamed the huge losses to EVN’s incapacity to foresee critical situations. ”Droughts usually occur in May, but EVN does not plan for possible shortages,” Hien observed.

To help EVN get out of the power crisis, the Industry Minister ordered thermal power plants to run at their full capacities, and allowed EVN to buy electricity from power plants that do not belong to the utility.

However, for unknown reasons, EVN failed to put into operation a 500- kilowatt transmission line between central Danang and Ha Tinh although it was ready by the beginning of May. ”May is usually the hottest time of the year,” Hien said.

EVN also failed to buy electricity from the Na Duong, a thermal plant owned by the rival Vietnam Coal Company at the height of the crisis in May.

The plant, which has a daily capacity of 2.4 million kilowatt hours (kwh), had already produced and sold 145 million kwh to EVN during its 2004 trial run. This year, the plant could only start running its first turbine when it finalised a formal deal with EVN on May 31.

Hien said that was only typical of EVN which has consistently failed to follow development targets. ”For the last 25 years, the electricity sector has never stuck to its development strategy,” Hien said.

Prime Minister Phan Van Khai, in 2001, approved the building of new plants in both central and southern Vietnam – in Can Don, Rao Quan, Dai Ninh, Ham Thuan, and Yaly, just to name a few. This was done in anticipation of power shortages expected between 2004 and 2006.

In the south, all the plants are up and running, but in the north, the 300 Mw, Uong Bi thermal plant scheduled for completion in 2004, will not operate before 2006. ”Cam Pha, another thermal plant scheduled to open this year, has not even been built,” Hien said, adding, ”EVN should take responsibility for all these delays”.

Hien said although EVN was allowed to build a transmission line linking Pleiku town with Hanoi city to take care of emergencies power shortage hit the northern region yet again and EVN conveniently blamed it on the prolonged drought,

Had EVN adhered to plan the crisis could have been averted. According to EVN’s 2001-2010 electricity development strategy, three thermal power plants û Na Duong (in Lang Son), Cao Ngan (in Thai Nguyen) and Uong Bi (in Quang Ninh) û should have been operational by now and generating 10 million kwh to help North Vietnam get over the power crisis.

”EVN should draw lessons in order to avoid shortages and improve the quality of electricity,” said Deputy Prime Minister Nguyen Tan Dung at a meeting organised early this month in Hanoi to review EVN’s performance in the first half of the year. Dung emphasised that electricity quality was ”one of the important requirements in Vietnam’s socio-economic development and investment attraction programmes”.

The government has devised plans to attract foreign investment in the electricity sector and even allows EVN to purchase electricity from foreign-owned companies. But, so far, no foreign investor seems interested in EVN’s offer as its tariffs are too low.

”An American group specialising in building thermal power plants used to eye the Vietnam market, but lost interest after EVN offered to buy their electricity at 4 cents per kwh which they felt was too cheap,” Hien said, adding that during this year’s crisis, EVN itself was forced to pay 9.6 cents per kwh to the Hiep Phuoc power plant.

This is typical of many Asian countries where state-controlled power plants can produce electricity cheaply through hydro-electric plants but are vulnerable to droughts and have to resort to thermal power plants which are increasingly owned by large multi-national corporations.

In India’s western Maharashtra state, for example, power was available cheaply but erratically from hydro-electric plants and to correct the situation the government allowed the US energy giant Enron Corporation to set up a 2,000 Mw power station which had to be shut down following serious tariff disputes.

The Enron deal, marred by allegations of kickbacks to politicians was considered a test case for India’s ambitious liberalisation plans begun more than a decade ago but is yet to be satisfactorily sorted out.

On the other hand, like Vietnam, India is faced with serious power shortages and its inefficient, state-run utilities have run up vast debts that experts say can only be tackled by allowing in private investments including from trans-national corporations (TNCs).

More than 40 percent of the electricity that EVN produces comes from hydro-electric plants which helps it to keep tariffs low but not add to dynamism needed to tackle the rapidly rising demand for power by industry and domestic users.

Hien suggests the establishment of more companies that can buy power from investors and then retail it to customers. ”Faced with competition, EVN will be forced to seek out more investors and give them better treatment,” Hien said.

Vietnam has already promised to liberalise some ”strategic” sectors like electricity and telecommunications in a bilateral trade agreement signed with the US. The country’s planned entry into the World Trade Organisation (WTO) is also expected to end the monopoly so far enjoyed by state-run corporations like EVN.

Industry Minister Hai agrees with Hien and has said that EVN ”can no longer live on its monopoly.”

For now though EVN does not seem troubled and is committing itself to supply electricity unchallenged up to 2007 and has plans on hand to construct several hydro and thermal power plants and to buy electricity from China.