Vietnam should cease negotiations for long-term electricity contracts with China in order to avoid losses and potential harm to the national economy, according to one economist.

Dr. Dang Dinh Dao, former Director of National Economics University's Institute for Economics and Development Studies, sat down to answer some questions pertaining to the issue.

Vietnam has been purchasing electricity from China at high rates because contracts were signed as far back as 2005. In the event that Vietnam breaks these contracts when local supply is abundant, there would be fines. What is your opinion about this?

For many years, Vietnam has been purchasing large amounts of electricity from China. The amount of electricity bought in from China has climbed to 4.65 billion kWh, accounting for 4% of the Vietnamese power supply.

In the past, this was seen as a necessity to meet demand in Vietnam. However, in recent years, domestic power sources have improved and a number of power plants run by EVN are not yet running at full capacity. Domestic supply of power has been more than able to meet demand for some time, but we continue importing electricity to honour our contracts. The Vietnamese Ministry of Industry and Trade and EVN should reconsider.

Vietnam has continued importing Chinese electricity at rising prices, and it's a great loss to our economy. This issue is the responsibility of the Ministry of Industry and Trade and EVN.

Perhaps this is the result of the monopoly that has existed in the electricity sector for many years.

Do you think that the continued power purchases from China by EVN proves Vietnam’s weak capacity in forecasting demand and production capacity? How can EVN be made responsible for this?

In fact, currently, many local power plants find it difficult to compete in the power market due to the high requirements of EVN.

EVN buys electricity from local producers at rates equal to one third of Chinese prices, adding on a number of other strict requirements. However, the group has been very generous to importers of very large amounts of electricity from China at rising prices.

This demonstrates EVN’s limited capacity to efficiently manage the market and underlines their problems in accurately predicting domestic supply and demand.

In addition, EVN's monopoly over the market leaves Vietnamese people with little hope of a decline in rates.

Obviously, both EVN and the Ministry of Industry and Trade will have to take responsibility for these great losses which do affect the national economy.

Risk of dependence on Chinese power

Electricity contract ties with China in addition to the recent Hiep Hoa 500-Kv transformer incident, related to the use of Chinese equipment, have raised public concerns over Chinese presence in the Vietnamese power sector. Do you think that this involves the interest groups involved?

China is the biggest importer to Vietnam, accounting for about 25% of the total value of all imports. The annual value of just the top 30 import products from China exceeds USD100 million. Out of those, just six products have a total value of over USD1 billion. China has also won many bids for projects, showing the fact that many plants in the Vietnamese power sector and other sectors are using Chinese equipment.

Chinese equipment are considered to be of substandard quality and to cause problems for producers and manufacturers.

The use of cheap, bad-quality Chinese equipment at many Vietnamese power plants has raised the question of interest groups. This is completely understandable.

Does China’s large role in the Vietnamese power sector put Vietnam at risk of being dominated? If this happens, what are the possible ramifications for the Vietnamese power industry?

Chinese electricity imports make up for about 4% of our power grid. Also, local power plants are only working at around 70% to 80% of their full capacity. Meanwhile, their prices are lower than those of Chinese power. With proper adjustments in our management systems, the situation could improve. So, the Chinese presence in the Vietnamese power sector has not been a serious issue so far.

However, if the situation is not improved, as EVN is still using their current management structure, it is a possibility that in the future Vietnam could be come dependent on Chinese power.

Many people have said that it is essential get rid of EVN's monopoly? What do you think of this?

I totally agree. This monopoly has long existed in Vietnam. The result is rising prices for consumers. The situation needs to be changed.

Thank you!