Coal Price Hike for Power Generation

Mr Tran Xuan Hoa, General Director of Vinacomin, analysed that as many as 11 million tonnes of pit coal are supplied to electricity production each year and the Electricity of Vietnam (EVN) takes about eight million tonnes. Compared with the cost price in 2008, the selling price of coal for the electricity sector was now equal to 58 % of production costs. If the price hike is not made now, the value of loss-offsetting will accumulate in the future. Furthermore, the coal sector has not been allowed to adjust the price for long a time although production costs have climbed.

 

Moreover, in 2010, the coal industry needs to invest VND31,000 billion (nearly US$1.67 billion). Therefore, the price rise in coal for the electricity industry is essential for reciprocal investment of capital sources. So far, Vinacomin has no ODA funds or concessional loans for investment. All investment capital of the group has to be taken from coal export profits.

 

If selling coal price for the power sector is kept unchanged while global coal prices have advanced 30 %, the coal industry will hardly be able to invest in expanding production capacity to feed the national economy, Mr Hoa added.

 

Mr Tran Viet Ngai, Chairman of Vietnam Energy Association, said: “For decades, the coal industry has had to sell coal to the electricity sector at lower prices than the market rate, leading to profit drains. Meanwhile, input costs of the coal industry are growing, even doubling and trebling over the past few years.”

 

Mr Ngai said when coal prices rise, electricity prices will pick up accordingly. The rate of price hike depends on actual factors.

 

According to the electricity regulating authority, if the coal price is adjusted as in the proposal of Vinacomin, it will cause serious disorders and raise the production costs of the electricity sector by 17 %. As a result, all economic sectors will be affected by the power price increase.

 

Mr Pham Le Thanh, General Director of EVN, said: “If the coal price is adjusted at the request of Vinacomin, EVN should have the right to ‘self-determine’ electricity prices. The power group has proposed applying market-based electricity price mechanism from January 2010 to the Prime Minister to narrow the gap with the market rate to encourage investment in the electricity sector and force users to economise power use.”

 

At a recent meeting held by the Ministry of Industry and Trade that discussed tasks to be deployed in 2010 and reviewed activities in 2009, Minister Vu Huy Hoang said the ministry was completing plans for adjusting fuel prices, including coal and electricity prices, to the Prime Minister.

 

Mr Hoang added that Vietnam should not extend subsidies for electricity price by allowing purchasing coal at lower-than-market price forever. Coal or electricity is a matter of energy security and needs to have money for production and development investment.

 

Mr Hoang also pointed out principles for adjustments in pricing mechanisms of two commodities crucially important to economic development and energy security: It [price change] cannot cause major disorders and impacts on the production and livelihood of the people; the adjusted price of coal and power must be based on proper calculations of reasonable cost price, production costs and profits.

 

According to Decision 21 of the Prime Minister, electricity prices will gradually be applied the market-based mechanism. The Ministry of Industry and Trade will coordinate with the Ministry of Finance and related agencies to calculate adjustment plans to ensure that they will cause minimal negative impacts.