Electric crazyland by mattsteinglass
June 13, 2007, 11:38 am
Filed under: Economics, Vietnam

I often find that Vietnamese are really uncomfortable with describing society as an arena of competing interests, and then setting up rules to manage those competing interests fairly. There seems to be a preference for aspirationally pretending that everyone works together harmoniously. The most interesting example I’ve come across recently came up in the kerfuffle over the past week regarding privatization of the electric power industry.

Plans to break up the national electric monopoly, EVN, and create a competitive market in electricity have been discussed for several years. A road map was laid out by the Prime Minister, in concert with advisors from the World Bank. The idea is to separate electricity producers from electricity distributors and consumers, so producers will have to compete to deliver power efficiently and cheaply. This should also promote outside (i.e. foreign) investment, since it removes the current anxiety that any foreign-invested plants will be at the mercy of EVN’s diktats on prices, and its potential discrimination in favor of its own plants.

So last month EVN laid its proposed privatization plan on the table. And then, on May 31, the World Bank’s chief economist, Martin Rama, sent a letter to the Industry Minister sharply critiquing the plan. He said it would likely vitiate the whole purpose of privatization. And other energy analysts say that what EVN is doing is creating a “privatization” plan that actually maintains its own domination over every aspect of the market. Here’s the deal:

EVN envisions setting up a national Single Buyer which would buy from producers and then resell to distributors, who would in turn sell to consumers. So far, so good: as Rama explains, Single Buyers are a good idea for developing countries to assure foreign investors that there will be a creditworthy customer for their power (since local distribution companies may not be big and wealthy enough to guarantee payment). The problems, however, are twofold.

First, EVN would make itself and other power producers shareholders in the Single Buyer. That would enable them to use their influence to collude in setting the prices for their electricity — discouraging efficiency and reducing consumer savings. And it would let them potentially discriminate in favor of their own plants and against new foreign entrants into the energy market, thus discouraging the outside investment which privatization is supposed to promote.

Second, the Single Buyer is envisioned as a for-profit company. This provides an incentive to raise the price to the consumer to the maximum. And because the government will ultimately be responsible for paying whatever is needed to ensure power is supplied, there is very little restraint here; the possibility of a California-like meltdown, where energy producers profiteer on the taxpayer’s dime, looms. The only restraint is government regulation, a cap on inflation of the price charged to consumers. Rama said for these reasons, no Single Buyer had ever been implemented as a for-profit company, anywhere in the world.

Another Vietnamese energy expert I talked to, who advises foreign energy companies, agreed completely with Rama’s critique. This expert said EVN’s plan represented an attempt to maintain domination of the market. Foreign energy players would “think twice” about entering Vietnam under these conditions, because they would not be able to compete fairly against Vietnamese state-owned behemoths — EVN, PetroVietnam — who also partly control the national electric Single Buyer.

Then on Monday, the director of EVN, Dao Van Hung, held a small press conference to defend the plan. He denied that it would be possible for the company to take advantage of its power to rip off customers: the government would still set price ceilings, and “this one company cannot dare confront the whole of society.” He said foreign investors would surely come, because, gosh, the market is just so lucrative. And he said bundling power generators and sellers together in the same company was an advantage, because it forced everyone to share: “It will not only sell power but also consume power. Therefore, both the consumers and the sellers must share the profits.”

I find this last construction extremely interesting. It’s similar to what one hears when one asks Vietnamese state-owned media organs, or public relations campaign designers, “Who’s your audience?” (“Everyone in society!”) Is this simply the legacy of Communism? Is it something about Vietnamese culture — its high regard for the value of ambiguity, its group solidarity, its egalitarian informality? Probably a mix of both. Anyway, the PM has now apparently criticized EVN’s proposal too, so it looks like something with a greater recognition of the inherent clashing interests of producers and buyers has a chance of being enacted.


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