3.4 The State monopoly situation in Vietnam – some selected examples
3.4.1 The case of Vietnam Electricity (EVN)
3.4.1.1 The monopoly situation in the electricity sector
The Vietnam Electricity Group (EVN) is currently one of the eight state groups established by the government.149 The history of EVN dates back to the 1990s. The turning-point in the development of EVN was marked by the separation of state management and conduct of business activities in the power sector by the establishment of power companies at provincial and regional levels. In 1995 the Electricity of Vietnam Corporation (EVN) was established in light of Decrees No. 90 and No. 91 for the reform of state owned enterprises. It was a merger of all three regional monopoly companies (Power Corporations No. 1, 2 and 3). EVN companies were organised to include generation power plants and distribution power companies set up at the provincial level.
The EVN (as an economic group) was established in 2006 as part of an attempt to form large state corporations possessing and doing business in crucial areas of the economy.150 It is currently a vertical state monopoly in the form of a holding company controlling the generation, transmission and distribution of power.151 It currently owns and runs those power plants which are 100 per cent under state ownership and possesses shareholdings in some independent power plants. EVN also conducts businesses in the power industry and other related areas, while investing in other services such as telecommunications, information technology, finance and banking. As electricity is seen as one of the important sectors in which the state must hold a monopoly, its monopoly position is guaranteed by a number of legislations.152 This monopoly is also guaranteed by the
149 See Vietnam Electricity website <www.evn.com.vn>.
150 Dien dan Doanh Nghiep, „Thi diem Thanh lap Tap doan Dien luc Viet Nam‟ [Experimental Formation of Vietnam's Electricity Group] (2006) <http://dddn.com.vn/37948cat119/Thi-diem-hinh-thanh-Tap-doan- Dien-luc-Viet-Nam.htm>.
151 Ibid. Vietnam Electricity website www.evn.com.vn; UNTACD, „Attracting FDI in Electricity‟ (2009) 94-95 Investment Policy Review of Vietnam <http://www.unctad.org/en/docs/iteipc200710_en.pdf>.
152 According to Decision No 58/2002/QD-TTg on Promulgating the Classification Criteria and List of to be-classified State Enterprises and State Corporations of Various Types, the national electricity
transmission system and power generation are areas where the state holds a monopoly or is engaged in a large State Corporation. See CUTS, Promoting Competition Policy & Law in Vietnam: A Civil and Society Perspective (2006), 27 <http://www.cuts-international.org/7up2/vietnamCAD.pdf>. In 01/2006 a roadmap and conditions for the formation and development of different levels of the electricity market in Vietnam was approved (known as Decree No. 26/2006/QD-TTg). See Decree No. 26/2006/QD-TTG dated on 26 January 2006 on Approving the Roadmap and Conditions for Formation and Development of Different Levels of the Electricity Market in Vietnam. See also Fulbright Economics Teaching Program, ‘Electricity Power Trading Company (Single Byuer) Case Study’ (2008), 2–3
<http://www.fetp.edu.vn/exed/2008/HaNoi/Docs/Readings/Day%202-2-Single%20Buyer-Case-E.pdf>.
84 restriction of foreign investment.153
EVN currently undertakes all processes in management, generation, transmission and distribution of power).154 This widespread scope is the root of the monopoly situation in the power sector, since EVN has a monopoly in the production, purchase and distribution of power.155 While other companies can be involved in the generation of power, they cannot distribute power to customers156 and must only sell their product to EVN as the only wholesale buyer.157 The result has been that its monopoly position as the sole distributor has allowed EVN to conduct monopolistic actions, while providing poor service and asking for increases in sale price, as described below.
3.4.1.2 Monopolistic actions of EVN
Arbitrary regular reduction of electricity supply
The electricity supply has often been shut down without warning or concern for the interests of customers and this has recently become common. EVN has been severely
153 In terms of attracting foreign investment to the power sector, the law is that foreign investors can only invest in power generation in the form of joint ventures with EVN, in which EVN will hold 51 per cent of stock. This does not allow foreign investors to take control of the plants. Vietnam‟s Government has stipulated that foreign investors can only own up to 30 per cent of listed companies. Therefore, the possibility of participation by foreign investors in this sector is low. It must be noted that the procedure by which an enterprise invests in a generation project is also complicated. This demonstrates that the monopoly situation of EVN is not only an administrative matter, but that its dominant status is also protected by regulatory barriers. The strategy for the development of a power market in Vietnam by 2025 guarantees this monopoly position of EVN.
154 In reality, EVN companies have generated most of the power output; the rest is produced by a few non- EVN system power companies.
155 As is stipulated in the roadmap for the development of the power market (Decree No. 26/2006/QĐ-TTg), a retail market for power which allows power generators to provide directly to customers by their choice is not to be established until 2022. The distribution of power has therefore also been monopolised by EVN.
Additionally, the National Load Dispatch Centre established in 1994 is a member of the former Vietnam Electricity Corporation and now EVN. This body has played an important role in monitoring power generation, transmission and purchase, allowing EVN to control the quantity of purchases from outside EVN sources.
156 In 2006, Ban Hoang Electricity Plant in the northern province of Cao Bang was completed but it could not sell the electricity it had produced. The reason was that the plant had not reached a purchasing
agreement with EVN and this caused the loss of VND8 million ($500) per day, excluding its bank interest.
See Vietnam News, „Lower Electricity Rates Await Market Reforms‟ (2006)
<http://vietnamnews.vnagency.com.vn/showarticle.php?num=01TAS261006>.
157 Some power producers have said that they could be ready to invest in new power plants and could even generate at a lower price than that of EVN. Other than the prolonged and complicated procedure, the main problem is that they can only sell to EVN. See Tuan Vietnam, „Benh Cua Doc quyen‟ [Troubles of Monopoly] (2008) <http://tuanvietnam.net/vn/sukiennonghomnay/5172/index.aspx >.
85 criticised for this practice, which can be considered as „monopolistic behaviour‟.158 Power shut-downs become particularly common during the dry season, when hydroelectric plants cannot generate adequate power.159 The sudden and widespread shutdown of the power supply is objected to strongly by both residents and businesses. This situation has caused problems for customers for which they have never been compensated. Businesses experience losses because of power cuts and the instability of the power supply has adversely affected residents‟ lives, leading to many complaints about the monopoly position of EVN.160
Continuous increase in electricity price
The price of electricity has continuously increased. Besides, the retail price is currently applied differently among various sectors and regions161. After 2007 EVN persuaded the government to approve adjustments in the power price on the grounds that the company had faced a shortage of funds.162 However, based on their calculations, economic experts challenged EVN, claiming it had gained a profit and could not plead the lack of financial resources in order to increase prices.163 It has therefore been concluded that EVN‟s
158 Vietnam Net, „Monopoly Allows EVN to cut Power Spontaneously‟ (2008)
<http://english.vietnamnet.vn/biz/2008/10/807894/>.
159 Vietnam Net, „Where to Buy Electricity? It‟s the Right of EVN‟ (2008)
<http://english.vietnamnet.vn/biz/2008/05/782818/>; Vietnam Net, „Cat Dien: Da Den Muc Bao dong‟
[Power Outage: Alarm Level Reached] (2008) <http://www.vietnamnet.vn/kinhte/2008/04/776685/>.
160 Vietnam Net, „Monopoly Allows EVN to cut Power Spontaneously‟, above n 158.
161 In some regions such as rural and remote areas, power is provided to customers through several intermediate agents causing higher prices. Some regions even have no power supply.
162 The price had increased in early 2007 to an average VND862 (5 US cents) per kWh from VND787 per kWh in 2006. On October 6 EVN submitted a plan to the Ministry of Industry and Trade to further increase the average price in 2009 to VND 1,017 per kWh, to VND1.088 per kWh in 2010 and to VND1146 per kWh in 2012. See Marketing4Daily, „EVN Slammed for Fat Bonus Appeal Despite Loss‟ (2008)
<http://marketing4daily.blogspot.com/2008/10/evn-slammed-for-fat-bonus-appeal.html>; Vietnam News,
„Home power may jump by 36 per cent‟ (2008)
<http://www.vietnamnews.com.vn/showarticle.php?num=02ECO231008>; Vietnam Business Forum,
„EVN Submits Power Price Hike Plan to MoIT‟ (2008)
<http://vibforum.vcci.com.vn/news_detail.asp?news_id=14224>.
163 According to Prof Dr Nguyen Mai, a senior economist, as 50 per cent of power output comes from hydropower plants and many of EVN‟s plants have been operational for 20 years, with the current power price EVN is making a profit and could even provide power at lower prices. The production cost could be absolutely reduced, thus reducing the sale price. See Vietnam Net, „EVN Should Consider Lowering Electricity Prices: Experts‟ (2008). <http://english.vietnamnet.vn/biz/2008/11/815870/>.
86 monopoly position is the cause for the high prices.164 While EVN has complained about its insufficient financial resources, it has invested in several areas such as banking and telecommunications. The inaccuracy of its financial report, according to a recent total audit of EVN in 2008,165 shows that the justification for increasing prices was not reasonable.166
Causing a lack of power supply
The fact that the electricity supply for the next few years will continue to be inadequate is a matter of concern. Several explanations have been given by EVN, such as the rapid expansion of the economy, the increase in customers‟ demands and the slow development of power plants.167 Even though EVN is responsible for the lack of electricity supply, it has refused to purchase power from outside resources.168 Electricity generated by several non-EVN power plants169 has only been purchased in limited quantities and at a low price imposed by EVN.170 Some of these producers have not achieved full capacity because of
164 Vietnam Net, „Want to Invest in Power? Talk to EVN‟ (2008)
<http://english.vietnamnet.vn/reports/2008/08/798976/>. Experts say that the major problem is the inadequacy of the power supply, a plan for increasing the power price would not change the situation of power shortage and would only help EVN reduce losses. See Vietnam Net, „Vietnam Will Lack Electricity until Monopoly Removed‟ (2008). <http://english.vietnamnet.vn/biz/2008/03/774391/>.
165 According to the State Audit report, EVN did not suffer a loss. The Audit report in 2009 showed that EVN‟s revenue in 2007 increased by nearly 30 per cent to VND58.2 trillion, including VND50.3 trillion from 58.45 billion kWh of electricity sold to consumers, averaging out at VND860 per kilowatt.
Meanwhile, the production cost was VND45.4 trillion, averaging out at VND777 per kilowatt, resulting in a substantial profit for the group. Auditors say EVN financial structure is solid. See Vietnam Net, „Auditor Says EVN Financial Structure Solid‟ <http://english.vietnamnet.vn/biz/2008/11/815677/>; Viet Bao, „Ket qua Kiem toan Tap doan Dien luc Vietnam EVN‟ (2008) <http://vietbao.vn/Kinh-te/Ket-qua-kiem-toan- Tap-doan-Dien-luc-Viet-Nam-EVN/80102183/92/>. Besides, it was shown that the amount of profit was higher than that announced by EVN. The reason is that nearly VND 600 billion ($35.29mil) worth of turnover it received from the electricity price increases in 2007 was not counted. See Vietnam Net, „EVN Should Consider Lowering Electricity Prices‟, above n 163.
166 Recently, EVN has refused to carry out 13 power projects assigned by the Government, pleading its shortage of capital. However, while repeatedly proclaiming its losses and lack of investment funds, it has recently asked for huge bonuses for its staff, with the total proposal amounting to 1 billion VND.
167 Figures from EVN have shown that the power demands of the country have grown at an average rate of 15 per cent per year and a high growth rate is expected to be maintained until 2015. See Vietnam News,
„ADB Offers Energy Aid with Plant Loan‟ (2008).
<http://vietnamnews.vnagency.com.vn/showarticle.php?num=03ECO010708>.
168 Vietnam Net, „Where to Buy Electricity?‟, above n 159.
169 Such as those of Petro Vietnam and Vietnam Coal and Minerals (Vinacomin VCM)
170 In 5/2008, Petro Vietnam lodged a claim with the Government Office and Ministry of Industry regarding the „refusal to deal‟ activity of EVN. Petro Vietnam argued that it had sufficient supply of gas for its power plants in Ca Mau. This supply allowed its Ca Mau 1 plants to generate power with average output capacity of over 720 MW and the highest reached 750 MW. However, the National Load Dispatch Centre, a member
87 the limited quantities purchased by EVN.171 Meanwhile any improvement in the power generation system is slow.172 The low growth rate of power plants is also due to the hesitance of investors, because all power generated can only be sold to the only wholesale buyer and there is no competitive power market.
Activities restricting competition
Another issue is whether EVN has ignored domestic generators and discriminated against them when it purchased additional electricity from outside sources,173 and whether or not there is a „refusal to deal‟ question, since, as the sole purchaser, EVN has the right to choose suppliers from several power generators. In the rejection of buying power from Ca
of EVN conducting the purchase of power, only required a limited quantity. For example, on 17 and 18/5, NLDC just required 1/3 of the average output capacity of the Ca Mau 1 Plants (284MW and 220MW), causing a loss for Petro Vietnam. See Vietnam News, above n 167; Saigon Times Online, „Lai Tiep tuc Cat dien Vi Thieu Nguon‟ [Cutting Again due to Electricity Shortage] (2008)
<http://www.thesaigontimes.vn/Home/thoisu/doisong/6329/>; The same situation occurred at Na Duong and Cao Ngan power plants owned by VINACOMIN (VCM). See Vietnam News, „Electricity Sector Should be Liberalised‟ (2005)
<http://vietnamnews.vnagency.com.vn/showarticle.php?num=01BUS210605>; VTC News, „Pha The Doc quyen Dien‟ [Breaking Monopoly in Electricity Sector] (2008)
<http://vtc.vn/kinhdoanh/175945/index.htm>.
171 Vietnam News, „PetroVietnam Blames EVN for Plant Losses‟ (2008)
<http://vietnamnews.vnagency.com.vn/showarticle.php?num=02ECO140508>.
172 EVN has been criticised for the low development of power plants other than EVN‟s system. From 1996 to 2006 the total output capacity of power was only raised to 8.000 MW and could not achieve the target prescribed in the General Plan for the development of electricity in Vietnam for the period 1996–2000, extended to 2010. Solutions proposed by EVN have been mainly just to cut down and save on power use.
See Saigon Times Online, above n 178; Saigon Times Online, „Giai quyet Thieu Dien Bang Cach Tiet kiem‟ [Solving Electricity Shortage Simply by Saving] (2008)
<http://www.thesaigontimes.vn/Home/thoisu/doisong/5245/>; Vietnam Net, „EVN Dau tu Da Nganh De Lay Ngan Nuoi Dai‟ (2008) <http://www.vietnamnet.vn/chinhtri/2008/04/779915/>.
173 In recent years EVN has continuously argued that due to the inadequacy of power sources it has to purchase power from neighbouring provinces of China. According to EVN, demand for power consumption was to sharply increase in 2008, up to 77 billion kWh, while it would only be able to meet a demand of 53 billion kWh and the remaining 24 billion kWh would need to be purchased from other local power companies as well as from China. The recent debate in 2008 regarding whether the price at which EVN purchased from China was higher than that of Petro Vietnam‟s power plants provided good evidence for this. Petro Vietnam claimed that EVN did not buy power from its power plants in the South even though the price it offered was lower. Similarly, as the small proportion of its output capacity was purchased by EVN, a foreign investment project named Formosa‟s plant in Dong Nai province, with a capacity of 150 MW, had to run at half of its capacity. While another offer to sell by a local producer, Hiep Phuoc Power Plant, was refused, instead, EVN started to purchase of power from China. See Vietnam Net, „EVN Blows off Local Electric Plants, Ignores Shortage‟ (2007) <http://english.vietnamnet.vn/biz/2007/12/758921/>. Figures given by EVN showed that the price at which EVN purchased from Chinese partners was lower than that of Ca Mau 1 and this was acceptable. The average price of each KWh bought from China was 4.5 cents – excluding transmission, management and loss fees –- while Ca Mau 1 electricity cost 7 cents in January and 8 cents in February. See Vietnam News, „PetroVietnam Blames EVN‟, above n 171.
88 Mau 1 plant, it was shown that EVN did not want to buy electricity and accepted a serious electricity shortage rather than suffering loss. As explained by an EVN officer, as the electricity price offered by Ca Mau 1 was higher than EVN‟s sources, the more EVN purchased, the bigger the losses it would suffer. However, this explanation seems not to have been accepted by power generators and experts.174 It is forecast that Vietnam will need a great deal more electricity and power projects in the coming years. This is caused by EVN‟s monopoly position in distribution and its imposition of a buying price. EVN is claimed to be maintaining its status by preventing other companies from participating in the electricity market. The greatest difficulty is the procedure for investors to invest in power generation while having to satisfy the tough conditions175 set by EVN.176