Unfairness
Unfairness
Energy groups are quick to complain about the impact of exchange rate fluctuations, which they claim have caused huge losses for them. They have floated the possibility of adding those losses to their production costs. However, their intention has drawn fire from the public as they are not the only ones who have suffered from the fall of the Vietnam dong currency against the U.S. dollar.
Vietnam Electricity Group (EVN), Vietnam National Oil and Gas Group (PVN) and Vietnam National Coal and Mineral Industries Group (Vinacomin) joined the chorus urging the Ministry of Industry and Trade to take action to help them out of the exchange rate change-triggered losses at a meeting last week.
Vu Anh Tuan, deputy general director of Vinacomin, claimed the Vietnam dong devaluation had led the group to incur an estimated loss of VND1.2 trillion as its projects had borrowed loans in U.S. dollar.
Vinacomin accounts for 10-15% of total power output but its claimed losses amount to VND1.2 trillion. EVN deputy general director Ngo Son Hai was quoted by Tuoi Tre as saying that EVN’s losses caused by exchange rate volatility could be 10 times higher than Vinacomin’s as EVN is the country’s biggest power utility.
As explained by Ho Cong Ky, chairman of PetroVietnam Power Corporation (PV Power), a majority of power projects were around 70% funded by loans which are in the billions of U.S. dollars. Therefore, when the dollar gets firmer against the dong, their debt would become heavier, eroding the efficiency of their investment.
This is the reason why the companies are exploring the possibility of hiking power tariffs to offset the claimed losses.
Nonetheless, many experts have described as unfair the intention of EVN, PVN and Vinacomin to add such losses to electricity production costs.
According to Truong Van Phuoc, vice chairman of the National Financial Supervisory Commission, the interest rate for foreign currency loans is a mere 5% per year while that for local currency loans is 10%. Energy producers take into account this interest rate gap as profit but now they are quick to point the finger at exchange rate volatility as a loss-causing factor.
Tuoi Tre quoted a banker as saying that energy enterprises should look back at the interest rate differentials from which they have long benefited, instead of complaining. They cannot let consumers shoulder such losses by adding them to electricity generation costs, the banker said.
Corporate electricity consumers said any electricity price spike this time around would put a dent in their already-low competitiveness.
Ngo Duc Hoa, chairman of Thang Loi International Garment Joint Stock Company, told the news site VOV that neither individuals nor organizations in the economy are spared the impact of exchange rate fluctuations. Therefore, if electricity tariffs are revised up, the entire economy would suffer. “Electricity prices should not be hiked for now,” Hoa said.
Dr. Nguyen Van Thuan from the University of Finance and Marketing told Nguoi Lao Dong that profits and losses are merely two sides of the same coin but it is unreasonable that energy firms complain about losses resulting from exchange rate adjustments and request for a price hike as a compensation. “Electricity tariffs are controlled by the State but would these tariffs be adjusted down if the dollar slides against the dong?” he asked.
The effect of the dong devaluation is equally shared by all stakeholders. But State-owned enterprises, especially those with monopolistic power, seek to raise prices while those in the private sector look for all possible ways to cut costs and optimize the use of resources to ensure their competitiveness as they know they cannot get the same State support as those in the state sector.
According to Dr. Nguyen Duc Thanh, director of the Vietnam Center for Economic and Policy Research, foreign currency loans provided for electricity projects normally come with long terms, ranging from 20 to 30 years. Therefore, any losses prompted by exchange rate volatility should be added to power generation costs over a couple of years rather than one year only.
Therefore, an electricity price spike, Associate Professor Ngo Tri Long told Nguoi Lao Dong, should be examined by an independent organization, and reviewed by relevant ministries and agencies, instead of the Ministry of Industry and Trade only.
Nguoi Lao Dong also quoted economic expert Le Dang Doanh, as saying that energy firms should make their data transparent and that the Government should have an independent agency in place to audit these energy producers.
But Ngo Tri Long calls for EVN to find ways to reduce input costs such as electricity losses and increase labor productivity to bring down production costs, instead of hiking power prices. And this is the sense of fairness.
