Vietnam Electrical energy (often known as EVN) is Vietnam’s state-owned electrical utility and supplies the vast majority of energy to residential, business, and industrial prospects within the nation. In accordance with latest reporting, the utility can be posting enormous losses and should run out of money as early as Might of this 12 months with mixed losses for 2022 and 2023 anticipated to achieve almost $4 billion.
The image has modified a lot from just some years in the past in 2020, when EVN posted after-tax income of VND 14.4 trillion (greater than $600 million) and ended the 12 months with VND 55 trillion (about $2.3 billion) in money available. The Institute for Vitality Economics and Monetary Evaluation famous that EVN got here via 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 rapid trigger was the COVID-19 pandemic. 2020 was a great 12 months 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 worldwide phenomenon, as a lot of the world went into lockdowns that 12 months.
Due to this, the worth of vitality inputs like coal was very low for some time. With slower development 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 must burn was pretty low cost. This was a great factor for EVN’s margins. However it was solely short-term.
In 2021, world demand for vitality inputs like coal not solely revived, however manner outpaced provide, and the worth of coal shot up in 2021 and 2022. For Vietnam, which imports a variety of coal and has many coal-fired energy vegetation that burn it, the price of producing electrical energy instantly grew to become very costly. And that is an particularly acute problem in Vietnam, as a result of construction of its electrical energy markets.
Vietnam is within the strategy of making an attempt 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 desires the personal sector to play a much bigger position. They need this, at the least partially, as a result of electrical energy technology could be very capital-intensive and the market will be an environment friendly manner of elevating cash to finance large-scale investments.
However any transition from state to market is difficult. EVN and its subsidiaries nonetheless management the technology, 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 prior to now, together with a nascent wholesale market. However EVN stays overwhelmingly the biggest and most vital participant at each stage. The state is reluctant to cut back its management over a vital nationwide operate – on this case the manufacturing and distribution of electrical energy – and provides extra affect to non-public sector actors. And I feel the utility’s latest monetary woes really assist us perceive why that is the case.
When producing prices started spiking in 2021, there have been mainly three choices for EVN and its sole shareholder, the federal government of Vietnam. The prices could possibly be handed onto customers. They could possibly be absorbed by EVN. Or some mixture of the 2. They went with the second choice, and the state refused to boost electrical energy costs over the past a number of years. When prices rise and income doesn’t, a probable final result is huge working losses and depletion of money reserves.
It seems to be just like the retail worth of electrical energy in Vietnam will certainly go up quickly. And with the worldwide worth of vitality 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 beneath. However with financial development projected to require huge 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 desires it to, which is to buffer customers from huge worth shocks. It was in all probability unwise to attend till they had been almost out of money to contemplate elevating retail charges, however it does draw a line beneath the intricate steadiness between state and market in lots of rising economies, and the complicated political and financial trade-offs concerned in managing that steadiness.