EVN hit by Vietnam's delayed power tariff hike

Vietnam increased the average electricity tariff 8.36% to $0.08/kWh.

The delayed increase in electricity tariffs in Vietnam is an indication that tariffs under a regulatory framework introduced in 2017 are not being regularly adjusted, according to a report by Fitch Ratings.

Vietnam increased the average electricity tariff 8.36% to $0.08 (VND1,864)/kWh during the last week of March. Vietnam Electricity (EVN) said the increase takes into account the higher cost of power supply in 2018 and the company's expected operation and investment plan in 2019.

Whilst Fitch said it expects the higher tariffs to support EVN's financial profile, the increase was the first since a 6.1% jump in December 2017 that aimed to contain inflation and stabilise the economy in 2018.

Under the regulatory framework introduced in August 2017, EVN is entitled to adjust tariffs every six months in line with its production costs, but automatic adjustments are limited to 5%; price increases between 5%-10% require approval from the Ministry of Industry and Trade, and larger increases need sign-off from the prime minister.

Despite the framework, Fitch said it forecasts residential and industrial customers to resist increases in electricity tariffs, which is likely to continue to affect the timely implementation of tariff hikes.

“We believe EVN's financial profile could be volatile in the absence of regular tariff increases when fuel costs are high. Hydro-power accounts for more than 40% of Vietnam's generation capacity,” Fitch added.

“Years with productive hydro-power generation serve to boost EVN's profit margin, but times of lower rainfall force the company to rely excessively on expensive coal. Further, almost 70% of EVN's borrowing is denominated in foreign currency, exposing the company to substantial currency risk.”