EVN demands electricity price increase based on exchange rate: "Taking advantage of the situation"?

According to Dr. Nguyen Duc Thanh, demanding an immediate electricity price increase based on the exchange rate is the behavior of a monopolist, not a competitor.

Public opinion is expressing outrage over the fact that major corporations such as Vietnam Electricity (EVN) and Vietnam Coal and Mineral Industry Corporation (TKV) are claiming losses of hundreds of billions of dong due to the adjustment of the USD/VND exchange rate and are proposing to include these losses in the cost of electricity, thereby increasing electricity prices. Dr. Nguyen Duc Thanh, Director of the Vietnam Institute for Economic and Policy Research (VEPR), affirmed: From an economic perspective, if businesses demand an immediate increase in electricity prices based on the rising exchange rate, it is the behavior of a monopolist, not a competitor.

It can only be an act of monopoly.

Dr. Nguyen Duc Thanh

According to Dr. Thanh's analysis, with the increase in the USD/VND exchange rate, all businesses (not just state-owned enterprises) cannot immediately raise product prices, even though most Vietnamese businesses have some degree of imported inputs for production. Businesses dare not raise prices immediately in line with the increase in the exchange rate because private businesses (not state-owned enterprises) face fierce competition. They must monitor their customers and constantly scrutinize their competitors in the market to be cautious about product pricing; otherwise, they risk losing customers.

As for businesses that want to increase product prices immediately according to the exchange rate, "they can only be businesses with a high degree of monopoly. Because of their monopoly, they don't have to compete with anyone, and they don't have to worry about what their competitors are doing. For state-owned enterprises with a monopoly, they have to ask permission from the State just to increase prices; otherwise, they would probably have increased product prices immediately according to the exchange rate," Dr. Thanh emphasized.

Observing business behavior from an economist's perspective, Dr. Thanh argues that demanding immediate price increases in line with rising exchange rates is the behavior of a monopolist, not a competitor. In a competitive environment, even without external oversight, businesses could raise prices as much as they wanted, but they wouldn't dare do so for fear of competitors and losing customers to rivals.

Therefore, according to Dr. Thanh, the current move by the "big players" in the electricity and coal industries to increase prices in line with the exchange rate shows that they understand the "game" better than anyone else, and they understand their monopolistic role. They are using the increase in the exchange rate to: Firstly, increase product prices exactly as they are forced to. Secondly, use it as a pretext to increase product prices.

What is the basis for a price increase?

In response to this question, Dr. Thanh analyzed: In principle, goods are produced from many different input sources. If the input sources are imported, in this situation, and are priced in USD, then the product cost can change according to exchange rate fluctuations, provided, of course, that the import contracts for raw materials are still committed at a floating exchange rate. However, if the contract portion was paid 1-2 years ago and has already been converted to USD, then it will not be affected this year if the USD/VND exchange rate increases. For outstanding debts with a floating exchange rate commitment in USD, when the USD/VND exchange rate increases, payment must be made according to the new exchange rate.

With the increase in exchange rates, electricity prices cannot exceed 5% (Illustrative image: KT)

Based on this, Dr. Thanh clarified: After the exchange rate increased by 5% since the beginning of the year, if businesses want to increase product prices, the reasonable increase should only be within the limits of the exchange rate increase and within the actual payment costs in USD, not an increase of 100% of the cost components of the product price according to the exchange rate.

For example, if the electricity sector (EVN) has input import costs accounting for 40% of the product price, then when the exchange rate increases by 5%, the product price can only increase by a maximum of 5% of the 40% costs related to the exchange rate, which is equivalent to a 2% increase in the product price.

For example, in the coal industry (TKV), assuming no imports and relying solely on electricity, the cost of electricity in coal production is only about 30%. In that case, a 2% increase in electricity prices would only result in a 0.6% increase in coal production costs. If the coal industry demands a price increase of 5% to 10%, that is unreasonable, especially since coal prices cannot be increased at the same rate as electricity prices.

Even if the coal industry argues that because they import machinery and equipment, an increase in exchange rates necessitates an increase in product prices, this is illogical. This is because the depreciation of this equipment is spread over decades. For example, if you owe $1 billion for equipment, paying back $100 million annually, then even if the exchange rate changes this year, the increase in USD payments only affects that year ($100 million), not the entire $1 billion debt.

Therefore, it can be seen that if a business wants to increase product prices according to the 5% increase in the exchange rate, the maximum price increase should not exceed 5%. This is because no Vietnamese business has to import 100% of its production inputs and pay in USD.

Regarding EVN's desire to increase electricity prices to compensate for losses due to exchange rate fluctuations, Dr. Thanh frankly stated: If EVN wants to increase electricity prices according to exchange rate fluctuations, it should first publicly and transparently disclose the input costs of production related to exchange rates. Then, economic experts and the public can easily calculate, in principle, by what percentage EVN can increase electricity prices.

"If EVN proposes an electricity price increase that exceeds the economic principles allowed, it means they are deliberately using the increase in exchange rates as an excuse to raise product prices to compensate for other losses, not losses due to exchange rate fluctuations," Dr. Thanh emphasized.

We need a transparent, objective, and scientific valuation council.

According to Dr. Thanh, the above analysis is only a principle. In reality, when businesses want to increase product prices according to exchange rates, they will offer many justifications. But "their temptation to increase product prices more than necessary, to compensate for the deficit caused by the exchange rate increase, is very likely. Because this industry is not transparent, they can manipulate information. Furthermore, they are in a monopolistic position, so they don't worry about how much they increase prices will affect consumers and their competitors, because in reality they don't face this pressure."

Meanwhile, non-monopoly businesses must compete in the market. Even if exchange rate pressure forces them to increase product prices by 2%, they might only dare to raise them by 1%. They would rather accept reduced profits than lose customers. This is because they are controlled by market competition and cannot act as freely as monopolistic businesses.

Furthermore, a business, not to mention its social responsibility, must have risk reserves. When exchange rates change, losses must first be covered from those reserves. If a business demands an immediate price increase in line with the exchange rate, it demonstrates a lack of risk reserves.

Therefore, to avoid excessive price increases based on exchange rate losses, according to Dr. Thanh, while transparency and public disclosure of cost structure information are essential, they are still insufficient. If a business reports a loss, the reasons for that loss must be clearly identified. This is a matter of corporate governance and business efficiency.

In the long term, the government must create a truly competitive environment so that businesses will compete with each other and prices will be balanced by the market. In the short term, however, "to prevent businesses from using exchange rate increases to excessively raise electricity prices, an independent intermediary voice is needed. Otherwise, if EVN submits its proposals to the Ministry of Industry and Trade, and the Ministry's appraisal council is not objective, scientific, and transparent, it will easily approve EVN's plan, even if the increase is unreasonable."

According to VOV.VN