Value Chain and Policy Analysis of Fossil Fuel

Trade, Subsidy and Tax in Viet Nam

By: PeaPros Consulting JSC

Hanoi, May 2011

(with minor revisions in December 2011)

Package 1, under the UNDP Viet Nam research project

“Research on fossil fuel prices and taxes, and their effects on
economic development and income distribution in Viet Nam”

The opinions, analyses and recommendations contained in this document do not necessarily
reflect the opinions of the United Nations Development Programme in Viet Nam. The Report is an
independent publication commissioned by UNDP.
Table of Contents
List of Figures ii
List of Tables iii
Abbreviations iv
1. Introduction 1
1.1. Methodology 1
1.2. Study Constraints 2
1.3. The cost of subsidies 2
2. Energy Use in general in Viet Nam 4
3. Electricity Generation and Use In Viet Nam5
3.1. Electricity generation in Viet Nam, 2009 5
3.2. Master plan directions 9
3.2.1. Constraints in meeting National Plan VI 12
3.3. The Electricity Market in Viet Nam 13
3.3.1. The Role of EVN 13
3.3.1. Market revenue 15
3.4. Electricity usage in Viet Nam 20
3.5. Key constraints and implications 21
3.5.1. Pricing constraints 21
3.5.2. The Role of Coal 22
3.6. Electricity Fossil Fuel use Conclusion 25
4. Refined Petroleum market 27
4.1. Refined Petroleum Demand 27
4.2. Users of Refined Petroleum in Viet Nam 29
4.3. Refined Petroleum market structure 30
4.4. State Revenues 31
4.5. Price fluctuations and stabilization 32
4.6. Refined Petroleum products conclusion 34
4.7. Map of the refined petroleum market 36
5. Household fuel use, overview 37
5.1. Fossil Fuel for household cooking 37
5.2. Household Electricity Use 39
5.3. Household Petroleum Use 40
5.4. Gas, Coal and firewood 42
6. Conclusion 42
6.1. Electricity market 42
6.2. Refined Petroleum 43
6.3. Government Subsidies 43
6.4. Next Steps 45
References 47
ANNEX 1: Terms of Reference for the study 53
ANNEX 2: ASEAN Electricity Tariffs, February 2011 56
ANNEX 3: Retail Petroleum Prices in ASEAN Member Countries 59
ANNEX 4: Regulations guiding the Fossil Fuel Market 60

i
 List of Figures
Figure 1: Energy Consumption by Fuel 2008, ktoe .......................................................................... 4
Figure 2: Energy Consumption by Economic Sector, 2008 ktoe ...................................................... 4
Figure 3: Electricity Production and Use Growth and GDP Growth, 2000-2009 ............................. 6
Figure 4: Viet Nam’s Electricity Generation by Source, 2000 and 2009 .......................................... 7
Figure 5: Changes in Viet Nam’s Electricity production structure 2000-2010(est.) MW ................. 8
Figure 6: Change in electricity generation structure 2009 to 2025, MW ...................................... 10
Figure 7: Production comparison, the World, China and Viet Nam ............................................... 13
Figure 8: Viet Nam’s Electricity Market Structure.......................................................................... 14
Figure 9: Electricity Production Share ............................................................................................ 15
Figure 10: Electricity Generation, Transmission and Retail Market in 2009 .................................... 17
Figure 11: Main users of Electricity .................................................................................................. 20
Figure 12: Coal and Electricity Production ....................................................................................... 23
Figure 13: Volume sales of refined petroleum products, 2007 to 2009 .......................................... 27
Figure 14: Transportation 2000 to 2009, million person kilometers ............................................... 28
Figure 15: Volume of Freight 2000 to 2009, thousands of tons ...................................................... 29
Figure 16: Import and Export of Petroleum products, 2003 to 2009 .............................................. 31
Figure 17: Household Fossil Fuel Use ............................................................................................... 38
Figure 18: Main energy source for cooking used by households, 2010........................................... 38
Figure 19: Average Electricity Consumption for Residential Consumers, by Poverty Status (kWh
per month): 2002-2008 ............................................................................................................... 40

ii
 List of Tables
Table 1: Electricity Generating Capacity and Production, 2009 .......................................................... 7
Table 2: Viet Nam energy capacity projections, 2009 to 2025 ........................................................... 9
Table 3: Total Costs of Generating Electricity in US cents per Kilowatt-hour ................................... 11
Table 4: Market value and tax revenues, 2007 to 2010 .................................................................... 16
Table 5: Minimum Wholesale and Retail Price Structure per Kwh (excl. VAT) under Decision
24/2011, 2011 .............................................................................................................................. 18
Table 6: Average price data for users across ASEAN, 2010............................................................... 19
Table 7: Share of electricity consumption by sector , 2015 to 2030 ................................................. 20
Table 8: Percentage of market by key industry................................................................................. 21
Table 9: Demand for Coal, 2010 to 2015 (1,000 Tons) ..................................................................... 23
Table 10: Direct and Indirect Subsidies to the Electricity sector .................................................... 26
Table 11: Growth in passenger and freight transport and the demand for refined petroleum
products ....................................................................................................................................... 28
Table 12: Sector use of refined petroleum, 2007 to 2009 .............................................................. 29
Table 13: Use of refined petroleum, 2007 to 2009......................................................................... 30
Table 14: Revenues from Petroleum, 2007 to 2009 ....................................................................... 31
Table 15: Retail Price structure for Refined Petroleum, April 2011 ............................................... 33
Table 16: ASEAN Prices of Gasoline and Diesel, February 2011 ..................................................... 34
Table 17: Direct and Indirect Subsidies to the Refined Petroleum Sector ..................................... 35
Table 18: Proportion Of Households Owning Electrical Appliances, by Poverty Status 2002 – 2008
(Poverty by WB/GSO Poverty Line) .............................................................................................. 40
Table 19: List of 31 eligible provinces (Zone 2) for fix 2% top-up ................................................... 41
Table 20: List of eligible districts (Zone 2) in 9 other provinces for fix 2% top-up ......................... 41
Table 21: Direct and Indirect Subsidies to the Energy Sector ......................................................... 44

iii
 Abbreviations
ADB Asian Development Bank
bcm billion cubic meters
BOO Build-operate-own
BOT Build-operate-transfer
CGE Computable general-equilibrium
ERAV The Electricity Regulatory Authority of Vietnam
EVN Electricity Vietnam
GDP Gross Domestic Product
GW Giga Watts
GSO General Statistics Office
IEA International Energy Association
ktoe Kilo ton of oil equivalent
Kwh Kilo watt hour
MoF Ministry of Finance
MoIT Ministry of Industry and Trade
MoNRE Ministry of Natural Resources and Environment
MW Mega Watts
OECD Organisation of Economic Cooperation and Development
PetroVietnam Vietnam Oil and Gas Group
PPA Power Purchasing Agreement
PVN Vietnam Oil and Gas Group
UNDP United Nations Development Programme
UNEP United Nations Environment Programme
UNIDO United Nations Industrial Development Organisation
VAT Value Added Tax
Vinacomin The Vietnam National Coal and Mineral Industries Group
VNEEP Vietnam Energy Efficiency Programme

iv
1. Introduction
This study was commissioned as part of a three phase in-depth examination of the fossil fuel market
in Viet Nam and the role of subsidies and taxes in the use of fossil fuels (see also Annex I for the
Terms of Reference). The three study areas included:-

 Package 1: Value Chain and Policy Analysis of Fossil Fuel Trade, Subsidy and Tax.
 Package 2: A Computable general-equilibrium (CGE) Model of the fiscal and social impacts of
fuel taxation in Viet Nam.
 Package 3: Environmental Assessment of the Potential Effects and Impacts of removal of
Fuel Subsidies and Fuel Taxes

Under this value chain study (package 1) fossil fuel use was examined for electricity generation (coal,
oil and gas), the use of refined fossil fuels in transportation (gasoline, diesel etc.) and the use of fossil
fuels at the household level (electricity, bottled gas, kerosene as well as transportation).

In addition to mapping the value chain for these fossil fuel markets and uses a key focus of the study
was the identification of different subsidies and taxes across the various value chains for fossil fuels.
Through the identification of these subsidies and examination of the regulations for these subsidies
the study hoped to pin point the main beneficiaries of fossil fuel subsidies and also the main payer of
fossil fuel taxes.

The package 1 study has two objectives:

1. Analysis of the current energy landscape and the energy market in Viet Nam
2. Recommendations on the potential effects of removal of subsidies and introduction of fossil
fuel taxes on revenue collection.

Due to time and data access constraints the majority of the study’s work was spent on objective 1.

1.1. Methodology

In order to map the movement of value and the benefits from subsidies and taxes to the
government, producers and users, the study team did the following:

i. Desk Review of key fossil fuel and industry reports for Viet Nam as well as background
materials on the role and impact of subsidies in fossil fuel markets.
ii. Collection and review of regulations guiding the use of fossil fuels: a database of regulations,
master plans and strategies detailing price controls and structures, taxes and subsidies was
built up. A brief literary review covering these regulations is available in the annexes.
iii. Gather key data on production and use of fossil fuels in the three main areas. Key data is
presented in this report with more detailed data available separately in an excel sheet
iv. Interview key stakeholders in the regulation of fossil fuel as well as key producers and
users. This included interviews with representatives of government ministries and institutions
and leading state owned enterprises in the fossil fuel market.
v. Map the value chains of the markets and provide analysis: This focused mostly on the
structure of two main fossil fuel markets, for electricity and transportation.
vi. Coordination with package 2 and 3: Throughout the study the team coordinated with
package 2 and 3 in the provision of data as well as the market structure for each area to
ensure key lessons and information supported their work.

1
 1.2. Study Constraints

The study was commissioned and finalized between January and February 2011 and initial deskwork
began in March 2011. Initial work had to be reviewed as considerable movements occurred in the
fossil fuel markets in the first quarter of 2011 including:

 Increased global oil prices and the almost collapse of the Government’s oil stabalisation
fund which led to a considerable revision of the retail price for refined oils in April 2011
include the deference of several taxes1.
 Revised regulations in the electricity market allowing for quarterly revisions of the price of
electricity2.
 Acceleration of the move towards a more competitive market for electricity generation in
line with 2004 Electricity Law3.
 Further adjustments to the sales price of coal to industrial users though not for electricity
producers4

For the purposes of this study we have taken January 2011 as the focal point for the market
structures in different fossil fuel use areas though consideration is given throughout our analysis of
these changes within the fossil fuel use market and what they mean for the value chain for fossil
fuels. We have also considered policy changes between January 2011 and May 2011.

Accessing specific data and qualifying data was a further hindrance to the study. Aggregated data for
most fossil fuel production and usages is available from a variety of sources (GSO, ERAV, EVN, PVN).
However, more detailed disaggregated data especially on usage was difficult to access as in many
cases disaggregated data has only recently started to be collected by these agencies5.

In other areas information was commercially sensitive. This was especially the case for coal sales to
different power plants and also electricity sales prices to EVN under power purchasing agreements
(PPAs). These issues will be highlighted throughout the report.

1.3. The cost of subsidies

The International Energy Association (IEA) estimated that fossil fuel consumption subsidies cost
governments across the world US$557 billion per year in fuel consumption subsidies. Subsidies to
producers are estimated at US$100 million in 2008.6

While subsidies may help to ensure some equitable access to energy, such as petrol and electricity, it
is recognized that subsidies often benefit the more well off in society as their use of energy is higher

1
http://bizvietnam.com/2011/02/oil-price-stabilization-fund-has-run-out-of-money/
2 th
Decision 24/2011D-TTg dated 16 April 2011 on the adjustment of electricity selling
price according to market mechanism
3
http://www.erav.vn/index.php?option=com_content&view=article&id=180%3Athang-72011-vn-hanh-thi-im-
3
th-trng-phat-in-cnh-tranh&catid=55%3Atin-tc-th-trng-in&Itemid=129&lang=vi
4
http://www.vinacomin.vn/temps/home/template2/defaultE.asp?Newid=17019&rootcate=1247
5
This was especially the case for disaggregated data on refined oil usage (gasoline, Diesel etc.) by industrial
sector for the 26 production areas identified by package two for analysis.
6
World Bank, IEA and OECD, 4:2008, “Analysis of the Scope of Energy Subsidies and Suggestions for the G-20
Initiative”

2
than the poorer groups. Though subsidies may be aimed at poorer groups and rural populations they
tend to spend less of their incomes on energy.

As IEA figures show, subsidies also incur high revenue costs for governments while the taxation of
fossil fuels can both provide governments revenues while also providing a strong tool to encourage
lower fossil fuel usage, energy savings and the adoption of cleaner energy and more efficient energy
saving equipment. The IEA estimates that OECD countries collected revenues of US$400 billion
between each year between 2003 and 2008 from taxes and VAT on fossil fuel.7

Subsidies come in a variety of formats, both direct and (increasingly) indirect. Over the last 20 years
Viet Nam has moved away from a system of direct subsidies to energy but pressures to keep prices
low and stable are leading to more indirect methods. These indirect tools maybe more damaging to
a government’s revenues and oversight of state assets as it is difficult to quantify these tools and
analyse their financial impact, as we will see.

There are a number of different approaches to identifying direct and indirect subsidies, for the
purposes of this paper we have used a framework developed by the OECD (2002) and the UNEP
(2008) who categorized subsidies into five key areas.8

a. Direct financial transfers: grants to consumers, grants to producers, low-interest or

preferential loans and government loan guarantees;
b. Preferential tax treatment: tax credits, tax rebates, exemptions on royalties, duties or
tariffs, reduced tax rates, deferred tax liabilities and accelerated depreciation on energy-
supply equipment;
c. Trade restrictions: tariffs, tariff-rate import quotas and non-tariff trade barriers;
d. Energy-related services provided directly by government at less than full cost: government-
provided energy infrastructure, public research and development on fossil fuels; and
e. Regulation of the energy sector: demand guarantees, mandated deployment rates, price
controls, environmental regulations and market-access restrictions.

To some degree each of these five methods are used in Viet Nam though direct transfers as
illustrated in the first method above, are less common today. However, preferential loans to
producers as well as loan guarantees are still strongly used for state owned enterprises in the energy
sector such as PetroViet Nam, EVN and Vinacomin.

The survey uses the above framework of direct and indirect subsidies when looking at fossil fuel use
in electricity and transportation to identify where the subsidies are and their nature.

7
World Bank, IEA and OECD, 4:2008, “Analysis of the Scope of Energy Subsidies and Suggestions for the G-20
Initiative”
8
GSI/ iisd, 11:2010, “The Effects of Fossil-Fuel Subsidy Reform: A review of modeling and empirical studies”

3
2. Energy Use in general in Viet Nam
In 2008 Viet Nam used 43,202 kilo ton of oil equivalent (ktoe) according to statistics by the National
Energy Efficiency Programme under the Ministry of Industry and Trade (MoIT). This use was an
increase of 24% since 2004. Coal is increasing in the supply of energy to Viet Nam but petroleum and
non-commercial energy remain the main energy sources.

Figure 1: Energy Consumption by Fuel 2008, ktoe

NON
COMMERCI
AL
ENERGY,
34% COAL, 19%

PETROLEU
M
ELECTRICTY
PRODUCTS,
, 14% 32%

NATURAL
GAS, 1%

Source: Institute of Energy 20109

Industry has become the largest user of energy in Viet Nam growing from 32 to 38% between 2004
and 2008 overtaking residential use who have seen their share of energy use decline from 42 to 37%
of all energy consumption.

Figure 2: Energy Consumption by Economic Sector, 2008 ktoe

COMMERC
E AND
SERVICES,
4%
AGRICULTU
RE, 1% TRANSPORT RESIDENTIA
, 20% L, 37%

INDUSTRY,
38%

Source: Institute of Energy 2010 10

9
VNEEP, 24:2010, Viet Nam Energy Statistics 2008,

4
3. Electricity Generation and Use In Viet Nam
Viet Nam’s electricity market remains a key sector for Viet Nam’s economic development and as a
result gets considerable focus and guidance. The sector has seen considerable changes in electricity
generation over the last decade and an increasing number of non EVN actors are entering the
electricity sector, mostly other state owned enterprises such as Vinacomin and PetroVietnam.
However, in the transmission and retail sector EVN continues to hold a monopoly position with no
competition to be allowed for sometime to come.

The sector has many challenges in meeting electricity demand as well as attracting investment. As a
key sector and one that has a strong influence on economic growth as well as inflation the
government has continued to treat the sector as a key area for National security and growth.

Management has often focused on using EVN as a policy instrument ensuring that pricing is
controlled to avoid negative affects on households as well as on inflation.

Overall management of EVN’s operations has caused some concerns with EVN failing to invest
adequately in its core business area of electricity generation while it is still allowed to invest in a
broad range of non-core business interests, including banking and telecommunications.

In recent years there have been no direct subsidies within the electricity sector, including electricity
generation, the purchase of inputs for production, sales to EVN and then retail pricing. But different
markets remain complex and price caps across the value chain imposed on different producers and
input suppliers has a considerable effect on the market structure and demand for electricity by both
household and industrial users.

This section will firstly look closely at the current market structure for electricity as well as the future
generation structure before looking at demand by users and different industries. We will then look
at the market structure for electricity and analyse the impact of price capping on generation and
retail sales.

Due to the increased role that coal will play in electricity generation we will look closely at the coal
industry and its importance for electricity generation.

3.1. Electricity generation in Viet Nam, 2009

Viet Nam’s electricity generation capacity has grown considerably over the last 15 years, from a
generation capacity of just 2,796 MW in 1995 to 18,268 MW in 200911. This growth has continued
since 2000 with electricity production growing from 26,562 million kwh in 2000 to 84,765 million
kwh in 2009 (an average of 13.82% per year between 2000 and 2009)12.

10
VNEEP, 26:2010, Viet Nam Energy Statistics 2008,
11
ERAV data 2010
12
EVN production data, 2011

5
Figure 3: Electricity Production and Use Growth and GDP Growth, 2000-2009

20.00%

18.00%

16.00%

14.00%

12.00%
Production
10.00%
Sales
8.00% GDP Growth

6.00%

4.00%

2.00%

0.00%
2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: ERAV and GSO, 2010

Figure 3 shows that electricity generation and production growth has continuously out paced GDP
growth levels of over the last decade, but the demand for electricity has constantly outpaced supply
as illustrated in an average sales growth between 2000 to 2009 of 14.34% compared to production
growth of only 13.82%.

Over this time there has been a shift in Viet Nam from very strong reliance on hydro electricity
generation to increasing gas production, underlined by the completion of several gas powered
plants over the last decade13. 2004 marked a milestone in Viet Nam’s energy capacity and
production structure when gas thermal power plants began to take the lead in electricity production
in the country, overtaking hydro power plants in electricity production. In 1995 hydro accounted for
more than 70% of Viet Nam’s electricity production, by 2005 this had dropped to 34.90%.

The data in Figure 4 represents production data rather than generation capacity data. As a result
figures vary when compared to the MW capacity in some electricity production areas, especially
hydro which is reliant on steady rainfall for its production.

13
Namely Phu My 1, 2.1 and 2.2, 3 and 4, O Mon 1 and Ca Mau

6
Figure 4: Viet Nam’s Electricity Generation by Source, 2000 and 2009

2000 2009
Coal, Import, Other Import, Other
12% 0% (small Coal, 5% (small
Diesel hydro 14% hydro
and Oil, non Diesel Hydro, non
11% EVN), and 32% EVN),
Hydro, 1% Oil, 1% 4%
Gas,
21% 55% Gas,
44%

Source: EVN 2011

Hydro remained a key generator of electricity in 2009 with 31.86% of generated electricity,
comparable to its capacity in 2009 of 6,548MW or 35.8 % in generation capacity.

Estimated figures from EVN in 2010 showed that Hydro electricity production contribution to
Vietnamese electricity fell to just 26.43% of total production which is probably due to a longer than
normal drought in 2010 and reduced rains during the rainy season. This may be one of the reasons
EVN-owned hydro electricity producers saw their electricity production fall to 23,789 million kwh of
electricity in 2010 from 27,007 million kwh in 2009.14

Table 1: Electricity Generating Capacity and Production, 2009

Capacity Production
MW % kwh %
Hydro 6,548 35.84 27,007 31.86
Coal and Oil 3,812 20.87 12,698 14.98
Gas Turbines 6,747 36.94 37,613 44.37
Diesel and Small Hydro 461 2.52 3,325 3.92
Import from China 700 3.83 4,123 4.86
Total 18,268 84,765
Source: ERAV, 2010 and EVN, 2011

Viet Nam’s continued reliance on hydro electricity for much of its electricity production is one of the
reasons for its varied ability to supply electricity across the country. These constraints are also a
reason why the Vietnamese government has chosen such a radical restructuring of its electricity
generation capabilities under Master Plan VI which underlines a considerable move away from a

14
EVN production data 2011 These figures are from EVN’s hydro subsidiaries and do not include production
from private hydro companies.

7
reliance on hydro and gas electricity generation towards increased coal powered electricity
production.

The sixth Master Plan for Power Development states the following principles for the development of
the electricity sector without giving a rational for the move towards coal over other forms of
electricity generation.
The development of electric facilities must meet the demand of load as mentioned
above (growth levels); it must ensure the construction schedules of hydro-electric
plants that offer the general benefits such as: flood control, water supply, electric
generation; there must be rational & efficient development of gas-operated electric
plants & acceleration in the construction of thermal electric plants;15

It goes on to suggest that the development of small hydro and renewable energy will only be
developed to service remote areas.
Development of small-scale hydroelectric plants, use of renewable energy & recycled
materials for electric generation to serve the remote & far flung regions, mountainous
areas, border land, sea islands16

Figure 5: Changes in Viet Nam’s Electricity production structure 2000-

2010(est.) (MWh)

50000

45000

40000

35000
Hydro
30000
Gas
25000
Diesel and Oil
20000 Import
15000 Other
10000

5000

0
2000 2002 2004 2006 2008 2010
Source: EVN 2011

EVN data also illustrates an increased reliance on imported electricity from China and other
importers since 2006 when less than 1% of Viet Nam’s electricity was imported. This had risen to
4,122.9 million kwh or 4.86% of all produced electricity 2009.17

Vietnam also exports a small amount of electricity to Cambodia, 151MWh in 201018.

15 th
Decision 110/2007/QD-TTg Article 1 6 Power Development Master Plan
16 th
Decision 110/2007/QD-TTg Article 1 6 Power Development Master Plan
17
EVN production data 2011

8
 3.2. Master plan directions

The National Plan for Electric Power Development, National Plan VI19 outlines the Vietnamese
government’s strategy for electricity generation from 2006 to 2015 with consideration to 2025. A
seventh national plan has been drafted by the Ministry of Industry and Trade (MOIT) and is, at the
time of writing, with the Prime Minster for consideration. Stakeholders interviewed believe the VII
National plan will not deviate too much from the VI plan.

The national plan is detailed in its identification of plants to be built over the 2006 to 2015 period
and also assigns responsibility to a variety of agencies, such as EVN, Vinacomin, Lilama and
construction and contract options such as BOO/ BOT.

There is a recognition that the National Plan is some way behind schedule due to limited access to
finance for many large state owned enterprises as well as limited interest in investment in the power
sector in Viet Nam due to a regressive pricing structure that favors equitable access to electricity but
which is forcing prices increasingly below generation costs. This will be discussed further on in the
report.

With electricity demand and generation growth due to increase considerably between 2006 and
2015, and on to 2025, considerable investment is also needed in the electricity industry. The World
Bank estimated in 2008 that Viet Nam would need to invest $4 billion annually between 2006 and
2020 in order to develop the electricity generation, transmission and retail sectors20.

Table 2: Viet Nam energy capacity projections, 2009 to 2025

Actual National Plan VI goals

2009 2010 2015 2020 2025

Total MW 18,268 26,000 40,770 60,300 85,200

5-year period
Increase 57% 48% 41%
Source: ERAV 2009 and the National Plan VI, 2010 to 2025

EVN has found it difficult to meet its responsibilities under the National Plan VI and announced in
2008 that it would be handing back planned investments in 13 power plants due to a shortage of
finances21. EVN continues to account for most electricity generation in Viet Nam, i.e. for 67.25% in
200922, though this share is steadily decreasing.

PetroVietnam, Vinacomin and Lilama as well as several small hydro companies and generators that
are providing industrial parks are increasingly expanding their electricity generation capacity and
reducing EVN’s generation market share.

18
http://vietnambusiness.asia/vietnam-provides-nearly-70pct-of-cambodias-electricity-import/
19
Decision 110/2007 Sixth Power Development Master Plan. At the time of writing this paper the Seventh
Master Plan was not yet available but has since been published
20
World Bank 2008, Project Appraisal Document Rural Distribution Program
21
http://asianenergy.blogspot.com/2008/11/vietnam-to-allow-foreign-companies-for.html
22
EVN production data 2011

9
Current high interest rates may further slow growth in electricity generation. Some companies,
especially smaller hydro producers are complaining that the price paid by EVN for the electricity is
not enough to cover the cost of power generation and loan repayments, especially under the
current high levels of bank interest rates.23

Under the sixth National Plan though all electricity production sources are set to grow, whilst there
is a considerable shift towards coal electricity generation. Underlying this are issues of capital
investment costs, production costs and also opportunities in other production areas for expansion,
as we can see from figure 6.

Figure 6: Change in electricity generation structure 2009 to 2025, MW

90000

80000

70000
Import
60000
Nuclear
50000
Renewable
40000
Gas
30000 Coal
20000 Hydro
10000

0
2009 2010 2015 2020 2025
Source: EVN and the National Plan VI

Hydro electricity is constrained due to location limitations for new plants as well as increasing
competition with water demand for both urban areas and agriculture. In addition, drought and
variations in rainfall have made hydro unreliable in recent years.

As discussed above and in box 1, gas is constrained by high initial capital investment cost as well as
high costs for input fuels as well as complications in price contracting.

Coal has one of the lowest capital investment costs in the construction stage as we can see from
table 3. This may be one of the reasons why coal has such prominence in the VI Master Plan. Equally,
Viet Nam has a large amount of coal and is currently a net exporter. As a result policy makers believe
coal can continue to be a cheap source domestically (by continuing to force prices below export
market prices) and as a result produce cheap electricity.

Table 3 illustrates the high investment costs in other electricity production areas compared to coal
and hydro as well as the high cost for fuel for production. However, this doesn’t show that there is
increased global competition for coal, and increased demand for coal pushes the price globally.

23
http://www.dztimes.net/post/business/power-plants-struggle-with-increasing-costs-and-low-revenues.aspx

10
 Table 3: Total Costs of Generating Electricity in US cents per Kilowatt-hour
Fixed Fuel O&M Total
Hydro 3.5 -- 0.2 3.7
Large Coal 2.0 4.2 0.8 7.0
Chinese Coal 1.2 4.3 1.0 6.5
Combined Cycle Gas 1.2 6.7 0.4 8.3
Gas Turbine 2.6 9.0 0.7 12.3
Diesel 1.6 30.0 1.0 32.6
Source: David Dapice, 200824

BOX 1: Gas and Power in Viet Nam

Gas may offer an opportunity for expansion with estimated production rising from 6.9 bcm in 2005
to 9.1bcm in 2010 and estimated to reach 22 bcm by 201525. In the past, infrastructure and
investment in gas pipelines has constrained the expansion of gas for electricity in Viet Nam.

The US$1.3 billion Nam Con Son Pipeline, Viet Nam’s first gas pipeline, came online in 2002 and
transfers 4 billion cubic meters of gas annually from Bloc 6.1 in the Nam Con Son Basin along a
362km high pressure offshore pipeline.

A second $1 billion pipeline from Block B in Southern Vietnamese waters was announced in 2010
and is to be built by PetroVietnam and Chevron.

Demand for gas is growing and the National Plan VI continues to see an increasing role for gas in
electricity generation in Viet Nam, but constraints continue. Infrastructure and finalisation of gas to
power agreements remain problematic. The Chevron/ PetroVietnam pipeline power deal was two
years overdue.

Changes in gas pricing between gas suppliers and users are also problematic. In 2009 changes in gas
prices from the Cuu Long Basin fields required Prime Ministerial approval and a recommendation
from both the Ministry of Finance and the Ministry of Industry and Trade26. PVN had called for
higher prices due to increased gas field maintenance costs in the field.27

The newly approved Gas Development Master plan 2016 to 202528, attempts to address some of
these pricing concerns and establishes a pricing framework that will see gas pricing for electricity
and household use move to a more competitive structure.

90% of the gas produced in Viet Nam is used for power generation29.

24
Dapice notes that these prices are indicative based and can change based on a different set of assumptions
from those in the paper.
25
BMI, 2011, Viet Nam Oil and Gas Report Quarter 1, 2011. Gas reserves are estimated by BMI to have been
557 bcm and may rise to 630 bcm.
26
http://www.monre.gov.vn/v35/default.aspx?tabid=675&CateID=57&ID=65641&Code=SMNGX65641
27
World Bank, 2010, Viet Nam Gas Sector Development Framework
28
Decision 459/QD-TTg, “Master plan for the development of the gas industry in Viet Nam, to 2015 and
orientation to 2025”
29
World Bank xv:2010

11
 3.2.1. Constraints in meeting National Plan VI

The growth in the development of electricity generation as well as the change in structure in
electricity generation as laid out in National Plan VI may find itself hindered by constraints in the
electricity market. These constraints will not only hinder the development of the plan and the
achievement of its goals but are also underlying the general failure for Viet Nam’s electricity market
to grow at the same rate as demand for electricity.

Firstly, despite increased competition in the generation market and the declining monopoly of EVN,
the economic group continues to control the wholesale electricity purchase markets as well as the
retail market. This control and EVNs role as generator and buyer as well as retailer, and conflicts of
interest in the form of EVN’s own power generating units, means there is an inherent bias for EVN to
purchase electricity from its own subsidiaries.

Secondly, the levels of investment needed in the electricity sector for generation, transmission and
distribution are beyond the capabilities of Electricity Viet Nam (EVN). The current pricing system
makes investment in the Vietnamese electricity market unattractive, as returns on investment are
both low and uncertain.

Thirdly, as mentioned, Viet Nam’s electricity pricing system does not yet reflect production costs and
low prices are unattractive for investors including EVN as well as domestic and international
investors. The proposal for the changes and increased market competition planned for June/ July
2011 will implement a complicated sales structure for generators to the sole retailer EVN, though
retail prices to users can now be adjusted on a quarterly basis.

Finally, Viet Nam continues to rely on and invest in hydroelectric power plants for a large percentage
of electricity generation. Fluctuations in rainfall as well as demands from agriculture mean
investments in hydro plants operate at levels considerably under design capacity. Furthermore, the
considerable move into coal power generation will have both an environment and economic costs.
The environmental cost is well known, but as Viet Nam begins to move to becoming a net coal
importer (by 2012 by some accounts), it will begin to compete for coal in an increasingly challenging
international market.

Figure 7 shows the electricity generation sources for the world, Viet Nam and China. Unsurprisingly,
world sources of electricity show a wide a variety, and coal is the leading source of electricity. In
some ways Viet Nam’s move towards an increased role of coal for electricity generation mirrors that
of the current global situation.

China however is a very different case who rely on coal for over 70 % of their electricity production
as discussed in box 3.

12
Figure 7: Production comparison, the World, China and Viet Nam

100% Other
Other Import Other
Import
Import
90% Hydro
Hydro

80%

Nuclear Nuclear Hydro

Gas
70%

60% Nuclear Other

Gas
Import
50% Hydro
Nuclear
Oil
40% Gas
Gas Oil
Coal/ Peat
Coal/ Peat
30%

20% Coal/ Peat

Oil
10%
Coal/ Peat

0%
World China Vietnam
2008 2010 2009
Source: IEA, 2010 World data, Chinese Academy of Engineering, 2007, EVN, 2010

3.3. The Electricity Market in Viet Nam

3.3.1. The Role of EVN

State owned enterprise Electricity Viet Nam (EVN) continues to dominate the electricity market,
including generation, transmission and retail. The 2004 Electricity Law does lay out a long-term
vision for the restructuring of the electricity market, between 2005 and 2025 but postpones the
opportunity for other actors to take part in retail until 2022 or 2024.

13
 The key milestones include30:

 2005 to 2014: the establishment of a competitive Generation market.

 2014 to 2022: the establishment of a competitive Wholesale market
 2022 to 2024: the establishment of a competitive Retail market

Figure 8: Viet Nam’s Electricity Market Structure

GENERATION TRANSMISSION, SCHEDULING AND DISTRIBUTION AND RETAIL

(2009) DISPATCHING

BOTs Power National National Electric Power

and IPPS Plants Load Power Power Companies
(33%) under Dispatch Transmissio Trading (11 PCs)
n Company
EVN Center
Corporation (SB)
(67%) (SMO) (TNO)
EVN

EVN’s control over the electricity generation market has eroded considerably in the last decade and
is sure to decline even more over the next few years as Vinacomin and PetroVietnam expand their
investment.

While the role of these two economic groups may be growing in the electricity market it is unclear if
they will favour further changes within the current structure for electricity despite some conflicts
with EVN over pricing as well as claiming losses in electricity production.

As their position strengthens they may begin to put pressure on EVN and MoIT to improve the
pricing system in order to ensure they cover their costs as well as make a profit. Alternatively, they
may prefer to continue to blame “losses” on the pricing structure and EVN and bow to pressure from
the central government that the electricity pricing system should remain below production cost for
the time being.

While Viet Nam’s electricity production has risen on average by 13.82% between 2000 and 2009,
EVN’s own production figures show that much of this growth was from non-EVN actors.

Analysis of EVN’s figures show that non-EVN production has grown by 49.50% on average annually
between 2000 and 2009, though this is mostly from the development of gas electricity production.
EVN’s production growth has been steady at around 10%.31

30
2006 Electricity Law
31
EVN production data, 2011

14
Their investment in the electricity sector has grown despite complaints that the pricing and caps
enforced by the government create a negative investment atmosphere.

Figure 9: Electricity Production Share

100% 1564 367 2658 3264

1636 2127 2113 4123
6026
90% 10583 12183
14114 17869
80% 23641

70%
60%
China Imports
50%
24926 28481 33691 39261 Non-EVN
40175
40% 41186 46465 50001
53093 57002 EVN
30%
20%
10%
0%
2000 2002 2004 2006 2008
Source: EVN 2011

3.3.1. Market revenue

The value of the electricity market has seen a considerable increase in value in recent years due to
increased supply and demand as well as annual increases in the average retail price . Between 2007
and 2010 the average price of electricity per kwh increased 25% with a further 17% increase in 2011,
following the approval of price increases in April 201132.

Prices may rise further as the government has allowed EVN to adjust the wholesale and retail price
for electricity on a quarterly rather than an annual basis. As the latest change came into effect on
the 1st of June 2011 EVN announced that for the time being it would not be increasing prices, in
order to support the Government’s attempts to bring inflation under control.33

GSO figures show that the total electricity market grew by an average of 20% in 2008, 2009 and
2010, and is around 4.5% of total GDP. The GSO data value the market at VND54,012 billion in 2007
and VND78,298 billion in 2009. However, revenue from production taxes and VAT on retail sales has
increased little from VNDVND4831 billion in 2007 to just VND4839 in 2009.

32
Decision 24/2011/QD-TTg
33
http://www.bloomberg.com/news/2011-05-31/vietnam-may-delay-higher-power-price-amid-asia-s-worst-
inflation.html

15
 Table 4: Market value and tax revenues, 2007 to 2010

Value in VND Billion 2007 2008 2009

Taxes from electricity production 3,983 5,221 3,746

VAT from Retail sales 848 953 1,093

Growth in revenues and taxes % %

Market value 16.93 23.98

Taxes from electricity production 31.09 -28.26
VAT from Retail sales 12.46 14.64

Source GSO, 2011

One explanation for the decline in government revenues from taxes on production may be tax
deferrals for EVN as the company struggles to finance its investments and pay its debts to electricity
suppliers such as PetroVietnam and Vinacomin.

The only direct subsidy that can be identified within the electricity production and retail market is
the recent support to poor households and a VND 1.12 trillion (US$53.3 million USD) quarterly fund
to subsidise electricity for poor households. Under this mechanism 3.2 million poor households will
benefit from a monthly payment of VND30,000 (US$1.4) as well as lower prices for the first 50kwh of
electricity they use, VND993 per kwh rather than the newly introduced price of VND1,242 per kwh.34
The VND30,000 is to subsidise any electricity costs over 50kwh where households will have to pay
the new higher price per kwh.

It remains unclear to what degree the payments have reached the 3.2 million poor households they
are intended for, and because households had to first register and only had a 2 month period to do
so, it is doubtful that the subsidy will reach all the households it was aimed at. EVN reported that it
had managed to reach 80% of targeted poor households by April 2011, just 5 weeks after the
regulation came into force.35

EVN has long complained that the price cap on electricity has caused losses due to the differential in
retail prices and generation costs as well as the price paid to non-EVN suppliers. This year it also
blamed the devaluation of the dong for its losses.

Figure 10 illustrates the electricity market including generation, wholesale purchasing by EVN and
transmission and final retail sales by EVN. EVN is now forced to enter into price purchasing
agreements (PPA) with all electricity generators and is required to do so before external generators,
such as PetroVietnam and Vinacomin, begin providing electricity to EVN. This follows prolonged
price disputes between PetroVietnam, Vinacomin and EVN for electricity supplied to EVN.

34
Decision 268/QD-TTg, February 2011
35
http://news.chaobuoisang.net/poor-households-get-state-support-180425.htm

16
Figure 10: Electricity Generation, Transmission and Retail Market in 200936

36
Generation tariffs on the left are generation costs in US cents (table 3) retail prices on the right come from table 5 and have been converted to US cents from VND.

17
As we have discussed the wholesale price cap of VND891.4 kwh detailed in Circular 05/2011/TT-BCT
dictates the price that EVN is prepared to pay electricity producers. The same Circular dictates the
retail price for 2011 of VND1,242 kwh.

EVN is now allowed to review electricity prices on a quarterly rather than a annual basis. It is also
allowed to increase prices up to 5% on a quarterly basis without approval from the MoF, but above
this EVN needs to seek government approval. Decision 24/2011 allows EVN to increase electricity
prices by 20% per year without seeking government approval37.

Previously EVN lobbied the government annually for price rises and the final decision on increases
were made by the Government.

Table 5: Minimum Wholesale and Retail Price Structure per Kwh (excl. VAT) under
Decision 24/2011, 2011

Wholesale Price
Retail Price
User VND per kwh (ecl. VND per kwh (ecl.
VAT) VAT)

to EPTC 891
to rural retailers 807 - 1515
to other rural uses 1,012
to irrigation systems 497 - 1465
to rural residential areas 807 - 1515 993 - 1962
to urban residential areas 863 - 1600 993 - 1962
to industrial zones 607 - 1819
to admin agencies 1117 - 1291
to production sectors 646 - 2061
to business 968 - 3193
1863 - 3105,
where no national network case by case
Source: Decision 24/2011/QD-TTg

EVN has long complained that the pricing mechanism despite is annual increases, continues to fail to
cover the costs of production and the company is facing large losses as a result. This seems to have
been born out recently when EVN announced it built up combined debts with Viet Nam National Oil
and Gas Group (PetroVietnam) and coal producer and supplier Viet Nam National Coal and Minerals
Industry Group (Vinacomin) of VND6.6 trillion (US$320 million) for electricity purchases in 2010.38

SOE losses are the main form of subsidy to the electricity market, though indirect, because losses
within EVN and other state owned enterprises are normally guaranteed by the state. It is difficult to
estimate the exact amount of these debts and the amount of indirect state subsidy to the sector as
within EVN’s losses it is almost impossible to differentiate between losses due to capped prices and

37
Decision 24/2011/QD-TTg
38
http://en.stockbiz.vn/News/2011/5/10/208374/evn-debts-issues-provides-impetus-for-electricity-
reform.aspx

18
the structure of the electricity market and inefficiencies in EVN’s management, poor investment and
operating decisions.

This form of subsidy, allowing losses by a company does not clearly fall within the OECD framework
introduced in section 1.3. Enterprise losses may fall most closely into category a. of direct financial
transfers to producers and soft loans, as losses will ultimately be covered by the Government (see
section1.3). However, the below market price for electricity also acts as an indirect transfer to
consumers.

One way to identify to what degree Viet Nam’s pricing structure is causing losses is to compare Viet
Nam’s electricity prices with other countries in the region or a regional average. This helps identify
some losses (and gains) in the market due to the pricing structure as well as state revenue losses (or
gains) due to a below region pricing structure.

This is however, just indicative and may not correctly reflect losses (or gains) due to the current price
cap structure as other countries in the region may have considerably different power generation
source structures (hydro, gas, coal, oil etc.), which in turn allow countries to charge higher or lower
prices than Viet Nam. At the same time the region has a varied level of competition in the electricity
sector, which will also affect prices.

Table 6: Average price data for users across ASEAN, 201039

COUNTRY RESIDENTIAL COMMERCIAL INDUSTRY AVERAGE PRICE

US cents US cents US cents US cents

Cambodia 0.14 0.27 0.27 0.23

Indonesia 0.29 0.14 0.20 0.21
Singapore 0.21 0.15 0.15 0.17
Malaysia 0.10 0.11 0.10 0.10
Lao PDR 0.06 0.10 0.07 0.08
Viet Nam 0.07 0.10 0.065 0.07
Myanmar 0.04 0.08 0.08 0.07
Thailand 0.08 0.06 0.06 0.07
Philippines 0.06 n/a n/a 0.06
Brunei
Darussalam 0.05 0.04 0.04 0.04

Regional Average 0.11 0.10 0.09 0.10

Source: http://talkenergy.wordpress.com

Table 6 is a crude summary of electricity prices across the 10 ASEAN countries. It does not reflect
actual receipts and average prices on receipts, only the averages for the tariff structure for each
country. Annex 2 details the electric tariff ranges for the different countries.

Two things stand out from this rough comparison of the region’s electricity pricing structure. While
Viet Nam’s average tariff rate across residential, commercial and industrial users is 30% lower than

39 st
Tariffs were exchanged to US$ on the 1 June. Unable to verify all data and tariffs.

19
the regional average it is in line with several comparator countries, namely Thailand and the
Philippines.

The comparison also shows that residential tariffs are 65% of the regional average less than those in
Thailand and Malaysia but higher than those in the Philippines. Industrial tariffs show a similar
pattern and amount to 72% of the regional average tariff and is lower than rates in Indonesia and
Malaysia but still higher than those in Thailand.

A move in pricing towards the regional average, as is generally happening, would expand the market
as a whole and also provide higher revenues for the government, and it would attract investment
into the electricity sector.

3.4. Electricity usage in Viet Nam

The survey team had difficulty in accessing electricity usage data for different sectors and also for
individual industries.

Figure 11 uses figures from the Viet Nam Energy Efficiency Programme40 and illustrates electricity
use over 5 sectors. Industry is the heaviest user of electricity taking up 52% of all electricity use
followed by residential use. Agriculture and transport both have electricity use levels below 1%.

Figure 11: Main users of Electricity

Residence,
38% Industry,
52%

Commerce
& Services, Transport, Agrculture,
8% 1% 1%

Source: VNEEP 2010

Table 7: Share of electricity consumption by sector , 2015 to 2030

2015 2020 2025 2030

% % % %
Agriculture, forestry and aquaculture 0.92 0.90 0.90 0.68
Industry and construction 50.63 51.00 52.88 53.48
Trade and hotel & restaurant service 4.62 4.77 5.46 4.87
Management and consumption by residents 40.15 39.45 35.99 35.60
Other activities 3.68 3.88 4.77 5.37
Source: EVN 2010 from Master Plan VI

40
VNEEP 35:2010 these figures are in Ktoe and no kwh. GSO figures showed Industry and construction
consumed 66% of electricity, Services 27% and Agriculture 7%.

20
Master Plan VI figures show that little change is expected in the consumption pattern over the next
20 years with a decline in agricultural consumption as well as residential consumption and growth in
Industry and construction consumption41. The main industrial users of electricity as well as coal are
given in Table 8.

Table 8: Percentage of market by key industry

2007 2008 2009 2010

Electricity use
Steel 1.90% 2.08% 2.66% 4.22%
Fertilizers 0.39% 0.43% 0.55% 0.88%
Cement 2.08% 2.28% 2.92% 4.63%
Paper 2.43% 2.66% 3.40% 5.39%
Coal use
Steel 10.76% 10.43% 10.27% 10.40%
Fertilizers 6.85% 6.54% 6.57% 6.54%
Cement 7.56% 7.42% 7.44% 7.55%
Paper 3.78% 3.78% 3.65% 3.65%

Source: GSO 2011

3.5. Key constraints and implications

3.5.1. Pricing constraints

We have discussed the role of the current pricing policy on the expansion of the electricity sector in
the future, and the negative effect that a constrained market will have on new investment. But Viet
Nam will need to attract an estimated US$4 billion a year in investment between now and 2025 if
supply is to keep up with demand.

The pricing structure has favoured hydro in recent years but has led to purchasing constraints
between coal producers such as Vinacomin and gas electricity producers such as PetroVietnam, but
has most recently also caused problems of small hydro producers who complain of high interest
rates.

While households have benefited from the low prices, industry has also greatly benefited and some
industries may have developed not due to a comparative advantage but rather because of cheap
inputs. While the pricing policy may have ensured that households have access to cheap electricity it
has also meant that many industries and businesses have been supported. However, as Viet Nam
has to release its hold on prices many businesses may find themselves no longer competitive when
input prices increase. This is illustrated by Box 2 and Table 8.

41
EVN and Master Plan VI based on base plan projections. The Master Plan also forecasts use for high and low
demand.

21
BOX 2: Subsidising Viet Nam‘s Steel Industry

Many industries benefit from Viet Nam’s capped electricity pricing system, notably the cement,
fertilizer, paper and steel industry that are using an increasingly large a share of electricity.42

The steel industry expanded hugely between 2009 and 2010 producing 9.2 million tons an increase
of 33% and as a result an increase in the use of electricity in the sector. In 2010 the Steel industry
consumed 4.67 billion kwh of electricity, 4.22% of total electricity produced for the year.43

The steel industry has increasingly had to pay market (export) prices for coal as does the cement
industry, however they continue to benefit from low electricity prices, which is also a key input.

A UNIDO study in 2010 found that Vietnamese steel manufacturers used coal for only 10% of their
energy needs but relied on electricity for 64% of embodied energy. As a result recent increases in
the price of coal for steel producers will have little impact on their production costs. However, any
increase in the price of electricity will impact on their costs significantly, especially since recently key
industries have increased their use of electricity drastically. It is clear that price caps in the electricity
sector are an indirect subsidy to the steel industry, as well as other industries.44

One former vice minister of Ministry of Industry and Trade dismissed Viet Nam’s steel industry and
said the country “did not export steel, it exported electricity” through the steel industry.

Price increases may indeed have a high inflationary impact, especially for the construction sector,
but they will also force these industries to begin to operate more competitively.

3.5.2. The Role of Coal

While the role of the coal industry in electricity generation was small at 14% in 2009 the National
Plan VI shows coal’s increasing role in power generation over the next 15 years, with coal set to take
a leading role in electricity generation by 2020.

However, the current coal export and pricing structure is causing Viet Nam’s mining monopoly some
headaches. Viet Nam produced 43.7 million tonnes of coal in 2009, 25 million tonnes of which was
exported.

Viet Nam holds considerable deposits of Anthracite coal in Quang Ninh province as well as lower
deposits of sub-bituminous coal in the Red River Delta.

Viet Nam is currently a net exporter of coal through Vinacomin, who controls over 94% of the coal
mining in the country. However, due to the growth in demand for coal in the power sector, as well
as in industry (cement, chemicals, metallurgy and other industries) this export is expected to reduce
considerably as Viet Nam moves to becoming a net importer of coal between 2012 and 2015.

42
GSO figures for the value of electricity sold show that the Steel, cement, fertilizer and paper industries
consumed electricity worth VND4.7 trillion in 2009, 7% of all market receipts. By 2010 these four industries
provided 15% of the market for electricity consuming VND14.24 trillion in electricity.
43
http://english.vietnamnet.vn/en/business/9035/mof-attempts-to-raise-export-tariffs-on-some-steel-products.html
44
UNIDO, 2010, “Energy and Resource Efficiency in the Vietnamese Steel Industry”

22
Currently most coal sold into the power generation market is sold to electricity producers at 50-60%
of export prices under guidance from the government. Vinacomin has lobbied strongly for coal
prices to be increased and has some success in having prices increased for industrial users with
increases of 40% for many non-EVN users and 5% for EVN.

Table 9: Demand for Coal, 2010 to 2015 (1,000 Tons)

Consumers 2010 2012 2015

Total domestic demand 34,017 % 55,570 % 94,304 %

Power 15,525 45.64 34,505 62.09 69,865 74.08
Cement 7,703 22.64 9,048 16.28 9,369 9.93
Chemicals 1,142 3.36 1,382 2.49 1,840 1.95
Metallurgy 1,556 4.57 2,354 4.24 4,380 4.64
Paper 221 0.65 253 0.46 330 0.35
Other 7,870 23.14 8,028 14.45 8,520 9.03
Source: Ministry of Industry and Trade

Coal use in the electricity sector is set to grow considerably over the next decade and as a result coal
imports will also increase. There will also be pressure to reform and increase prices of coal sales into
the electricity sector. This in turn is sure to bring upward pressure on the price of electricity,
especially as coal electricity generation is growing.

Figure 12: Coal and Electricity Production

23
BOX 3: China’s Coal Conundrum

China is currently suffering an electricity crisis due to its continued control of the pricing of
electricity into the domestic and industrial market and its reliance on coal for electricity production.

China relies on coal for 73% of its electricity production and the price of coal has been steadily rising
as demand for electricity has grown across the country to power growth in industry and also a
growing consumer market.

Yet while coal prices are allowed to increase in line with domestic and import costs, electricity
producers are forced to keep their prices in line with government guidelines. As a result electricity
generators are suffering increasing financial losses as input price rise and retail prices remain steady.

This is now hindering China’s economic growth as electricity generators and utility companies, the
majority of whom are state owned, are showing increased displeasure at the situation and the fact
that the Chinese Government is allowing them to accrue ever-increasing losses.

Many electricity generators have decided to cut production rather than continue to incur ever-
increasing losses. This is impacting industry across China as many factories are forced to cut
production due to brown outs and black outs, and it is impacting commodity markets as far away as
Australia who are suffering from a down turn in demand for coal as well as inputs such as copper
and tin, used in China’s manufacturing industry.

The obvious lesson is that the Vietnamese government should be careful in how it introduces
competition into the electricity market and should ensure that input markets move at the same
time. It is also a warning that input suppliers and producers can suffer losses for only so long and as
Viet Nam’s demand for electricity grows so will the strength of those participants in the electricity
sector.45

Despite China’s reliance on coal and its new position as the leading emitter of greenhouse gases it is
also the world’s leading producer of renewable electricity producing 537 billion kilo watt hours in
2008. The United States produced 393 billion kwh in 2008.

45
http://www.nytimes.com/2011/05/25/business/energy-environment/25coal.html?_r=1&ref=china

24
 3.6. Electricity Fossil Fuel use Conclusion

Table 10 illustrates the various direct and indirect subsidies that might be available in the electricity
sector when using the OECD (2002) and the UNEP (2008) structure given in section 1.3.

The electricity sector is key for the Vietnamese economy and society and several of the tools
discussed below have been used at one time or another to support the electricity sector. However,
the survey found few direct subsidies beyond the recent support to poor households due to price
increases across the sector. Most subsidies are indirect subsidies and as a result are difficult to
quantify.

As we can see form table 10 there are in fact few direct subsidies to the electricity sector. Most
support using the OECD/ UNEP approach is focused on infrastructure and research support as well as
a regulated market with restricted access.

Other areas of support are somewhat irregular and are taken as a given due to the nature of state
owned participation in Viet Nam. As mentioned, the current subsidies for the poor are not a long-
term measure. However, state owned enterprises such as EVN, PetroVietnam and Vinacomin benefit
from priority access to finance as well preferential loans and loan rates, if not directly from the
government then from many of their subsidiaries which include financing and banking.

EVN is a key investor in An Binh Commercial Bank (AB Bank), with AB Bank stating in its Annual
Report for 2010 that “AB BANK continuously developed new products to meet the highest demand
of EVN, member entities, associate entities as well as power project contractors”.46 EVN also has a
finance branch. PetroVietnam Finance is also a strategic shareholder in AB Bank.

PetroVietnam owns a 20% stake in Ocean Bank and controls PetroVietnam Finance.47 Vinacomin
doesn’t have a banking subsidiary but does have the Viet Nam National Coal and Mineral Industries
Group (Vinacomin)'s Finance one-member Ltd Co (CMF). CMF and the Military Bank appear to have
close connections.48

As we will see in the petroleum industry the government is ready to use tax deferrals to ensure a
stable price in certain fossil fuels rather than to subsidise a particular sector. However, the loss of
revenue could be considered a subsidy of sorts. Again, these losses taken by firms and covered by
the Government are difficult to categorise under the OECD framework for subsidies but are likely to
be resolved with direct financial transfers and low interest loans to producers (ref category a.;
section 1.3).

Other areas are not being used at the moment and are also not currently given any consideration
within the current regulatory framework. However, as we have seen with support for the poor as
well as the change to quarterly electricity pricing, the Government is not adverse to make ad hoc
changes to the regulatory framework of the electricity sector and therefore may consider these
areas at some moment in the future.

46
http://www.abbank.vn/Upload/file/thongtincodong/bieumau/ABBANK_BCTN_2010_TiengAnh.pdf
47
http://www.vnstocknews.com/2008/10/petrovietnam-buys-20-pct-in-ocean-bank.html
48
http://www.vnstocknews.com/2009/08/military-bank-signs-comprehensive.html

25
 Table 10: Direct and Indirect Subsidies to the Electricity sector49

Support format Support Tool Guiding regulations

Direct financial Low-interest  Decision 268/QD-

Government
transfers Grants to Grants to or TTg
loan
consumers producers preferential
guarantees
loans
 Decision
Exemptions
24/2011/QD-TTg
Preferential tax Tax credits, Deferred tax Reduced tax on royalties
 Circular
treatment tax rebates liabilities rates duties or
05/2011/TT-BCT
tariffs
 Decision
Tariff-rate Non-tariff 24/2011/QD-TTg
Trade restrictions Tariffs import trade  Circular
quotas barriers 05/2011/TT-BCT

Public  Electricity Law

Energy-related Government
research
services provided -provided
and
directly by energy
developmen
government at infrastructur
t on fossil
less than full cost e
fuels
 Circular
05/2011/TT-BCT
 Decision
Mandated Environmen Market-
Regulation of the Demand Price 24/2011/QD-TTg
deployment tal access
energy sector guarantees controls  Electricity Law
rates regulations restrictions
2004
 Decree
102/2003/ND-CP

When considering the coal sector, which provides a major import for the electricity sector and an
area that will only expand in the future, similar support is given.

Again direct subsidies are often not explicit though the operational losses due to the forced sale of
the electricity and coal at below production and export levels means the government must bear the
losses for these two production sectors in electricity.

49
Green means an active area of support or subsidy, direct or indirect. Yellow is support available at certain
times or for certain participants in the sector. Red means not yet used.

26
4. Refined Petroleum market
Despite the large growth in demand for fossil fuels for electricity in Viet Nam over the last decades
figure 1 in section 2 shows that petroleum products continue to be one of the leading providers of
energy in Viet Nam, accounting for 26.3% of energy supplies in 2008, slightly behind renewable
energy. It is likely that petroleum products will have taken the lead today but figures were
unavailable for this study.50

This section will look at the use of refined petroleum products in Viet Nam, including the share of
use by different fuels (gasoline, diesel, kerosene etc) and their means of use (transportation,
domestic transport, Air etc).

Viet Nam has been very proactive in implementing increasingly market based pricing for refined
petroleum products due to the growth in refined petroleum use as well as fluctuations in world
market prices and Viet Nam’s lack of a refinery until 2009. However, the Government has attempted
to influence the price of retail of refined petroleum through a stabilisation fund contributed to by
enterprises in the retail petroleum market.

The Government has also used tax and tariff waivers in order to ensure a low price and a reduced
impact of rising global prices for refined products on inflation. However, this reduced Government
revenues from refined petroleum, as we will see.

This section will not look at oil production and exploration in Viet Nam beyond its relationship to
Viet Nam’s first refinery (Dung Quat in Quang Ngai province, which opened in February 2009 and
now satisfies around 30% of Vietnamese refined petroleum demand).

4.1. Refined Petroleum Demand

GSO figures show that between 2007 and 2009 the sale of refined petroleum products increased
from 44,922,000 tonnes to 61,346,000 tonnes an increase of 37% in just 3 years. (see figure 13)

Figure 13: Volume sales of refined petroleum products, 2007 to 2009

Share of Refined petroleum sales: 2009

Unit, 1000 tons 2007 2008 2009 Parafin, Kerosen Gasoline

Gasoline 11,230 16,356 16,228 15% e, 0% , 29%
Air fuel,
Diesel 21,996 29,154 29,024
5%
Air fuel 1,756 2,635 2,927
Parafin 7,960 9,393 8,276 Diesel,
Kerosene 855 627 252 51%
Other 1,124 4,554 4,639
Total 44,922 62,719 61,346

Source: GSO 2011

50
VNEEP 2010

27
A decline was seen in demand between 2008 and 2009 most likely due to the impact of the global
recession, as growth in Viet Nam for 2009 fell to its lowest level since 2000 to reach just 5.32%,
which appears to have impacted the demand for petroleum products.

Available data shows that much of the growth in demand for transportation has been in road
passengers, which has grown an average of 11.6% between 2000 and 2009. Air transport has also
grown considerably an average of 16.47% a year since 200051.

Figure 14: Transportation 2000 to 2009, million person kilometers

90000

80000

70000

60000

50000 Aviation transport

40000 Inland waterways

30000 Road
Railways
20000

10000

Source: GSO 2011

Freight transportation has also increased considerably over the last decade with road transportation
growing 14.69% over the last decade. In all, freight grew on average by 13.56% between 2000 and
2009.52

Table 11: Growth in passenger and freight transport and the demand for refined
petroleum products
2007 2008 Prel.2009

Total Passenger Transport (Kilometer

increases) 12.45% 8.79% 7.19%
Freight (tons transported) 16.21% 9.46% 7.13%
Demand for Refined Petroleum
(tons) 28.38% -2.24% 16.41%
Source: GSO 2011

51
GSO 2011, www,GSO.gov.vn
52
GSO 2011

28
Growth in passenger and freight transportation has had a massive impact on the demand for refined
petroleum over the last decade and despite a slow-down in recent years is still growing at levels
above general GDP levels.

Figure 15: Volume of Freight 2000 to 2009, thousands of tons

800000

700000

600000

500000 Aviation transport

Maritine transport
400000
Inland waterway
300000 Road

200000 Railway

100000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 Prel.
2009
Source: GSO 2011

4.2. Users of Refined Petroleum in Viet Nam

The main user of refined petroleum products are Industry and Construction who have seen their
share of refined petroleum product usage grow by 40% between 2007 and 2009, while agriculture
saw their demand grow 31% and services 29% over the same period.

Table 12: Sector use of refined petroleum, 2007 to 2009

2007 2008 2009 2009 %

Industry/ Construction 29,564 41,654 41,486 68

Agriculture 3,333 4,473 4,373 7
Services 12,025 16,592 15,487 25

Total 44,922 62,719 61,346

Source: GSO 2011

29
 Urban users remain the main users of refined petroleum consuming 71% of refined petroleum
products in 2009 and increasing their use by 42% over the 2007 to 2009 period from 30,693,000 tons
in 2007 to 43,449,000 tons in 2009 while rural use has grown from 14,229,000 tons in 2007 to
17,346,000 tons in 2009.

Looking at specific industries there has been little change in the structure of refined petroleum use
between 2007 and 2009, with household use making up the majority of use (personal motorbikes
and cars), followed by transportation and then logistics.

Table 13: Use of refined petroleum, 2007 to 2009

2007 2008 2009

1,000 tons % 1,000 tons % 1,000 tons %
Household
(motorbikes and cars) 8,162 18.17 12,277 19.57 11,566 18.85
Transportation
(bus/ train) 7,071 15.74 10,134 16.16 9,777 15.94
Logistics (lorries etc.) 3,303 7.35 4,662 7.43 4,869 7.94
Shipping 4,206 9.36 6,180 9.85 5,605 9.14
Airlines 7,483 16.66 10,403 16.59 10,420 16.99
Other 14,697 32.72 19,064 30.40 19,109 31.15

Units: 1000 tons 44,922 62,719 61,346

Source: GSO 2011

4.3. Refined Petroleum market structure

As with the electricity sector and other sectors in Viet Nam, refined petroleum imports and retail
sales are dominated by a state owned enterprise, the Viet Nam National Petroleum Corp
(Petrolimex), as well as other state owned enterprises including the Military Petroleum Company
and Saigon Petro (under Ho Chi Minh City People’s Committee).

Until February 2009 all of Viet Nam’s refined petroleum products were imported and Viet Nam was
a net exporter of crude oil. The completion of Dung Quat Oil refinery in February 2009 slowly
brought a range of domestically produced refined petroleum products onto the market. A mixture of
domestic Bac Ho sweet crude, Nam Rong-Doi Moi oil from Vietnamese fields as well as imported
crude oil from Malaysia53. This is impacting on Viet Nam’s exports of crude oil and government
revenues from exports54.

The completion and full operation of Dung Quat refinery had no affect on the sale price of refined
petroleum into the domestic market as from the outset Dung Quat was selling all production at
global market prices. By 2008 Viet Nam became a net importer of oil by value though not in volume.

53
http://www.vneconomynews.com/2011/01/dung-quat-refinery-to-import-malaysia.html
54
http://www.intellasia.net/news/articles/resources/111288874.shtml

30
Figure 16: Import and Export of Petroleum products, 2003 to 2009
25000

20000
Export value US$
million
15000 Import value US$
million

10000 Export tons (1,000)

Import tons (1,000)

5000

0
2003 2004 2005 2006 2007 2008 2009
Source: GSO 2010

Petrolimex controls around 60% of all petroleum imports. From 2009 petroleum imports reduce as
Vietnam’s first refinery, Dung Quat in Quang Ngai province came online and began production
meeting 30% of Vietnam’s domestic demand.

From 2009 Petrolimex held 41% of the refined petroleum retail market in 2009, according to GSO
figures55, selling 30,420,000 tons in 2009. Saigon Petro holds 31% of the retail market with sales of
22,609,000 tons in 2009 and the Military Petroleum Company holds 25% with 18,302,000 tons56.

4.4. State Revenues

Revenues from the petroleum sector steadily increased between 2007 and 2010 despite the
reduction in sales for refined petroleum products during the 2008/2009 period (Table 14).

Table 14: Revenues from Petroleum, 2007 to 2009

Revenues in VND billions 2007 2008 2009
Value of taxes from petroleum sales 13,544 16,930 20,257
Value of VAT from petroleum retail
sales 201 237 283
Import duties from petroleum 3,210 3,671 4,382
Total state revenue 16,955 20,838 24,922

Growth in revenues
Taxes from petroleum sales 20.00% 16.42%
VAT from petroleum retail sales 14.94% 16.43%
Import duties from petroleum 12.55% 16.22%
Source: GSO 2010 & 2011

55
BMI, Quarterly review 2011, puts Petrolimex’s market share at 51%
56
GSO 2011

31
Revenues from refined petroleum are considerably higher than those from electricity shown in table
5, reflecting both the desire for the government to keep electricity prices low and the difficulty in
controlling the price of refined petroleum products .

Total revenues from petroleum sales shown above amounted to VND24,922 billion in 2009
compared to VND4,839 billion for electricity illustrating the importance of oil taxes for government
revenues. Import duties from petroleum are comparable to taxes from electricity production,
however VAT from petroleum in 2009, VND283 billion, was considerably lower than that from
electricity sales, VND1,093 billion.

4.5. Price fluctuations and stabilization

Refined petroleum retailers have had some freedom in setting their own prices in recent years.
Retailers have been allowed to increase prices if global prices increase by more than 7% without
seeking approval from the Ministry of Finance57 58However, in 2010 the Government has asked
retailers not to increase prices in order to dampen inflationary pressures.59

Since 2009 a stabilisation fund has been in place to try to slow price increases of refined petroleum,
should global prices increase. Under Circular 234/2009/TT-BTC a levy of VND300 to VND500 has
been added to every litre of petroleum, which is placed in the stabilization fund. Consumers are
paying for the stabilization fund and should also benefit from lower prices when the fund is used.

As global prices started to increase in late 2010 petroleum retailers began to draw on the fund and
effectively emptied the fund by February 2011 due to high global oil prices and continued losses due
to forced caps in retail pricing.60

By April 2011 the government was forced to considerably reconsider the retail pricing structure in
light of the exhaustion of the stabilization fund, continued global price pressures and enterprise
losses. It was reported that some retailers had stopped supplying gasoline altogether due to
continued losses. In order to relieve pressure on retailers the government has temporarily
suspended import tariffs and allowed the retail price to increase by 15% in order to reduce losses,
keep prices at affordable levels and reduce pressures on inflation.61

Under a revised structure a payment for the stabilization fund will still be made by consumers while
companies will also continue to have their profits and operational costs dictated to them by the
Ministry of Finance. As we can see from table 15, enterprises will still be making a loss but can
continue to draw to a lesser extent from the stabilisation fund.

Under 2009 legislation several provinces and districts were placed in Zone 2 areas, mostly remote
areas, where petroleum prices are allowed to be 2% higher than those above due to the cost of
transporting fuel to these areas.

57
Circular 234/2009/TT-BTC
58
http://www.vietnam-briefing.com/news/vietnam-allow-oil-importers-set-prices.html/
59
http://www.lookatvietnam.com/2010/03/vietnam-fuel-companies-dont-have-total-pricing-freedom-
official.html
60
http://bizvietnam.com/2011/02/oil-price-stabilization-fund-has-run-out-of-money/
61
http://blogs.voanews.com/breaking-news/2011/03/30/vietnam-raises-fuel-prices-to-record-levels/

32
 Table 15: Retail Price structure for Refined Petroleum, April 2011
Type
Component of basic
No Unit Petrol Diezen Mazut
price Kerosene
RON92 0,05S 3,5S Note
Global  Singapore market; Exchange
price (CIF VND/lit rate of state-owned
15,751 17,487 17,488 13,996
Viet Nam ter, kg commercial banks applied
3 ports) since 11 Feb 2011
 Import tariff = CIF price x
tariff rate (%). 17% -> 12% ->
6% -> 0% for petrol since
Import 0 - 17
0 0 0 0 1/1/2011. Temporarily
tariff %
suspended since 24 Feb 2011
Taxes,
(Circular 24/2011/TT-BTC
fees in
4 dated 23/2/2011, MoF)
accorda
Special  Special consumption tax =
nce with
consump % 1575.1 0 0 0 (CIF price + Tariff) x tax rate
regulati
5 tion tax (%). 10% applied for petrol.
ons
Value
added -10% 1,853 1,869 1,868 1,500  VAT Law
6 tax (VAT)
Petroleu VND/lit  Dec 03/2009/QĐ-TTg dated
1,000 500 300 300
7 m fee er, kg 09/01/2009 Prime Minister
Fixed
VND/lit  Circular 234/2009/TT-
operatio 600 600 600 400
er, kg BTC dated 09/12/2009 MOF
8 nal costs
Items Fixed VND/lit  Circular 234/2009/TT-
300 300 300 300
9 defined profit er, kg BTC dated 09/12/2009 MOF
by MOF Extracted
for Price VND/lit  Circular 234/2009/TT-
300 300 300 300
Stabilisat er, kg BTC dated 09/12/2009 MOF
10 ion Fund
 Decree 84/2009/NĐ-CP
Basic VND/lit dated 15/10/2009 GoV;
21,379 21,056 20,856 16,796
price er, kg Circular 234/2009/TT-BTC
11 dated 09/1212/2009
Retail VND/lit  Decision 048/XD-QĐ-TGĐ
21,300 21,100 20,800 16,800
12 price er, kg dated 24/02/2011 Petrolimex
Comparis
on (Basic
% 100.40 99.80 100.30 100.00
price/ret
13 ail price)
Source: Petrolimex 2011

Viet Nam has recently been very much in-line with refined petroleum prices across the ASEAN
region. Table 16 shows prices as of February 2011 with an update for Viet Nam reflecting prices after
the April price increases.

As we can see Viet Nam’s retail prices for Diesel and Gasoline were higher than those found in
Malaysia and Indonesia, though below Thailand’s. After the price rises in April 2011 Viet Nam’s retail
prices moved closely to Singapore’s, though price increases in the other 9 ASEAN countries are not
reflected.

33
 Table 16: ASEAN Prices of Gasoline and Diesel, February 2011

Diesel Gasoline
Country US cents US cents
Singapore 90 107
Viet Nam (April 2011) 100 101
Cambodia 89 94
Lao P.D.R 76 92
Philippines 81 91
Thailand 64 87
Viet Nam (Feb 2011) 77 80
Malaysia 53 53
Indonesia 42 50
Myanmar 52 43
Brunei Darussalam 21 38
Source: http://talkenergy.wordpress.com

4.6. Refined Petroleum products conclusion

As with the electricity sector, there are no longer subsidies for refined petroleum products though as
we can see price caps are heavily used and there is a stabilization fund. The price structure also
heavily defines operational profits.

Within the OECD/ UNEP framework of different types of subsidies we will again see that indirect
subsidies are almost the only method to subsidise the refined petroleum industry. A major indirect
subsidy is the fact that state enterprises forced to carry losses and these losses are ultimately born
by the state (ref category a., section 1.3).

However, tax waivers on for example import tariffs are also a subsidy and reduce State revenue. The
Government may be tempted to also introduce waivers for other taxes such as the Environmental
Tax due to be introduced in 2011 in order to keep prices of refined petroleum products stable.

As we can see in Table 17 the structure for direct and indirect subsidies is very similar to that for
electricity with mostly indirect subsidies in place. These indirect subsidies are mostly in restricted
market access as well as deferred taxation and price controls.
While the Government has finally allowed petroleum pricing to fully reflect global prices and price
movements, the continued price cap intervention measn that the retail price will always see delayed
movement and as a result firms will continue to make a loss and be forced to take funds from the
stabilization fund in order to fill the gap between the import price and sales price.

34
 Table 17: Direct and Indirect Subsidies to the Refined Petroleum Sector62

Subsidy format Subsidy Tool Guiding regulations

Direct financial Low-interest

Government
transfers Grants to Grants to or
loan
consumers producers preferential
guarantees
loans
Preferential tax Exemptions  Decision
treatment Tax credits, Deferred tax Reduced tax on royalties 190/2010/TT-BTC
tax rebates liabilities rates duties or
tariffs
Trade  Decision
restrictions  190/2010/TT-BTC
 Circular
Tariff-rate Non-tariff
234/2009/TT-BTC
Tariffs import trade
 Decree
quotas barriers
100/2009/ND-CP
 Circular
 70/2009/TT-BTC
Energy-related Government-
Public
services provided provided
research and
directly by energy
development
government at infrastructur
on fossil fuels
less than full cost e
Regulation of  Circular
the energy 234/2009/TT-BTC
sector  Decree
115/2009/ND-CP
Mandated Market-
Demand Price Environment  Decree
deployment access
guarantees controls al regulations 100/2009/ND-CP
rates restrictions
 Decree
84/2009/ND-CP
 Decision
78/2008/QD-BTC

It is also clear that the Government is willing to take a revenue loss from deferred taxes in order to
keep some stability in the retail price. This is possible while Viet Nam benefits from export revenues
during high global oil prices and as a result the Government will get increased revenues from oil
exports. However, as Viet Nam imports more than it exports this Government revenue-benefit may
be wiped out by losses due to tax deferrals.63

62
Green means subsidy, direct or indirect, normally in place, yellow is support available at certain times or for
certain participants in the sector. Red means not yet in force.
63
At the time of finalizing this report some open discussion and dispute was reported between the Ministry of
Finance’s proposed price management and the Ministry of Trade and Industry, both of whom have a hand in
the manage of the petroleum sector. MoF manages the price of petroleum and the stabilization fund while the
MoIT manages supply of oil and oversees enterprises involved in the sector.
http://english.vietnamnet.vn/en/business/13264/mof--moit-disagree-on-petrol-price-control.html

35
In addition, as oil is diverted from export to domestic refineries, further taxes will be lost. This will
increase as new refineries are built over the next 10 years and Viet Nam moves towards self-
sufficiency in refined oil and a considerable reduction in oil exports.

Viet Nam will need to find new tools and mechanisms to ensure a stable price for refined oil sold
domestically, as well as to protect enterprises from losses.

The present situation of allowing losses to be accrued by state enterprises in the refined petroleum
sales market is also making it difficult for the state to differentiate between legitimate losses due to
price changes and lags in increases in price rises and the losses due to mismanagement of
investments and subsidiaries in the state enterprises.

4.7. Map of the refined petroleum market

36
5. Household fuel use, overview
The study was unable to undertake any primary household energy use surveys of its own but has
benefited from secondary data on the use of fuel at the household level, from household survey
data:

 A World Bank Paper “Power Sector Reforms and the Poor in Viet Nam” using Viet Nam
Household Living Standard Survey data from 2008.
 Draft University of Copenhagen Household Survey findings “Characteristics of the
Vietnamese Rural Economy: Evidence from a 2010 Rural household Survey in 12 Provinces of
Viet Nam.64

This section will look at household use of fossil fuels using data available from the two studies above
as well as GSO data, to draw some conclusions as to the impact of pricing and subsidies on
households, and especially the poor.

Although the Government of Viet Nam has introduced several schemes to support the poorer
groups in using electricity, gasoline, diesel, kerosene, or for household livelihood support such as
lower price fertilizer, which is subsidized by the regulated lower price of gas and electricity etc., the
size of benefit is not remarkable due to the low level of consumption and expenditure.

Figure 17 illustrates a household use of fossil fuel and the indirect benefits or negative impact of
subsidies and taxes on a household. There are few direct fossil fuel related subsidies benefiting
households though they are of course benefiting from lower and capped electricity prices and have
been negatively affected by the increase in refined petroleum prices in recent months.

While poorer households may use limited amounts of refined petroleum products it is clear that the
increase in fuel and electricity prices affects the cost of goods and also agricultural inputs, whilst the
rise in the price at the petrol pump will be felt by many households in different areas. A more
detailed survey should be carried out on consumption patterns and the impact of refined petroleum
price increases and electricity price rises on consumption and access to agricultural inputs.

5.1. Fossil Fuel for household cooking

Household fossil fuel usage is mainly for cooking and lighting, and different patterns are seen at
different levels of income among households from the poorer to the better-off groups, and between
rural and urban areas.

Figure 18 shows a decrease in the use of firewood and an increase in the use of natural gas along
with improvement in living conditions in rural areas. There are big differences across income groups,
with the poorest using mostly firewood compared with only 30 percent of the richest group. More
than half of the richest group uses natural gas as their main energy source for cooking while this is
only around five percent for the poorest group.65

This may be partly due to income rises and as a result a move towards more time saving alternatives
and cleaner fuels, but may also indicate a reduction in the availability of wood as a fuel source. More
64
This paper is based on the results of a DANIDA household survey of 2,100 households in 12 provinces. 1,300
of these households were also surveyed in 2008 and 2006.
65
Characteristics of the Vietnamese Rural Economy: Evidence from a 2010 Rural Household Survey in 12
Provinces of Viet Nam.

37
examination of the use of wood at the household level is needed to determine the reasons for a
move away from wood to gas. However, household income clearly has a major role in the
differences.

Figure 17: Household Fossil Fuel Use

Firewood Coal +
Tax (-)
Subsidy (+)
Electricity + Gas +

Coal (beehive) Diesel +

Household
Petrolium +

Gas
Electricity +
Fertilizer +
Gas +

Figure 18: Main energy source for cooking used by households, 2010

Source: VARHS 201066

66
Characteristics of the Vietnamese Rural Economy: Evidence from a 2010 Rural Household Survey in 12
Provinces of Viet Nam

38
Electricity and other fuel sources (paraffin and kerosene) for cooking are used by only a few
households. Movements then In the price of electricity and liquid fuels have a limited impact on
most households, however, increases in the price of natural gas does have an impact and may lead
poorer households to move back to firewood as a fuel source.

5.2. Household Electricity Use

As we saw in the discussion of the electricity sector, rural areas accounted for only 30% of electricity
use in 2009 despite making up 60% of Viet Nam’s population. With the high inflation since mid 2010
and the price rise in electricity in February 2011, the Government was quick to implement a system
of direct support for poorer households so they were not overly affected by the price rise.

The subsidy system implemented in March 2011 targeted 3.2 million poor households benefiting
from a monthly payment of VND30,000 (US$1.4) as well as lower prices for the first 50kwh of
electricity they use, VND993 per kwh rather than the newly introduced price of VND1,242 per kwh.67

This is not a new system, though the one off payment is new. Since 2009 an incremental block tariff
meant that all households (rural and urban) would receive their first 50kwh of consumption at a low
tariff set at 35-40% of the average price.68

In addition to the new support of VND30,000, the poor are also entitled to receive an extra
VND12,000 from EVN. The instruction of EVN requires that poor households have to commit to use
less than 50kWh per month, otherwise will be treated as any normal household with the removal of
support.69

A recent survey support by the World Bank suggests that the high level of electricity access across
Viet Nam means that large numbers of the poor have connections and therefore have the potential
to be impacted by changes to tariffs and service levels. According to EVN 100% of districts are
connected to the national grid, 98.63% of communes and 97.08% of households.70

VHLSS data from 2008 shows that 88.4% of the poorest 10% have access to electricity and the poor
spend 2.9% of their total expenditures on electricity compared to 3.2% for the non-poor.

Table 18 illustrates that while fewer poor have access to electricity they also have lower demand /
consumption as they have fewer equipment that requires electricity. This is confirmed by VHLSS
electricity consumption figures from the World Bank.

67
Decision 268/QD-TTg, February 2011
68
World Bank 2:2010 A lifeline tariff allows the first band of electricity use, 50-100kwh, to be sold at lower that
average levels ensuring that the poor have access to low price electricity. Though all users benefit those that
use more may repay the lower price once they use more electricity at higher tariff bands.
69
MOIT Circular No. 05/2011/TT-BCT 25 February 2011, and EVN instruction on
http://www.evn.com.vn/Default.aspx?tabid=60&TopicId=32&ItemId=5588&language=vi-VN
70
http://www.evn.com.vn

39
 Table 18: Proportion Of Households Owning Electrical Appliances, by Poverty Status
2002 – 2008 (Poverty by WB/GSO Poverty Line)

TV Stereo Comput Fan Fridge Electric Water Washer Pump

er Cooker Heater
2008 VHLSS
Non-poor 93.1 17.7 13.1 88.7 37.3 77.0 11.4 15.2 47.0
Poor 65.4 3.7 0.0 61.8 1.2 31.3 0.1 0.2 18.6
Areas
Urban 95.2 21.5 28.5 89.9 64.3 85.5 25.3 36.9 36.5
Rural 87.6 14.0 4.9 83.9 20.9 66.1 4.2 4.4 46.4
Source: VHLSS 2008 cited in WB paper “Poverty and Social Impact Assessment: Power Sector Reforms
and the Poor in Viet Nam, 2010

Figure 19: Average Electricity Consumption for Residential Consumers, by

Poverty Status (kWh per month): 2002-2008

180
Electricity Consumption (kWh)

160
140
120
100
80
60
40
20
0
2001 2002 2003 2004 2005 2006 2007 2008 2009
Year

Non-poor Poor

Source: VHLSS 2002, 2004, 2006, 2008 cited in WB paper “Poverty and
Social Impact Assessment: Power Sector Reforms and the Poor in Viet Nam,
2010

5.3. Household Petroleum Use

As noted in section 4, households consumed 12 million tons of refined petroleum in 2009, 18.85% of
the market, and are responsible for paying a considerable amount of tax as retail sales are subject to
a special consumption tax in addition to import tariffs and VAT on sales.

This special consumption tax is exempt for diesel, kerosene, and mazut, which are used by the
transportation and production sectors, and by households in rural areas. From the subsidy
perspective this aims to support specific vulnerable groups or production units. However, the issue
discussed here is the usage or purpose of special consumption tax.

40
The goal of the waiving the special consumption tax for these fuel types in support of poor
consumers (but not for VAT on these fuels) is somewhat negated by an additional cost for all fuels
sold in remote and rural areas or production sector. As a result, under Decision 568/XD-QĐ-TGĐ a
maximum 2% is allowed to be added to the common price, applied for 31 provinces, 25 districts of 9
other provinces, and all islands (so-called Zone 2).71

Table 19: List of 31 eligible provinces (Zone 2) for fix 2% top-up

No Province No Province
1 Hà Giang 17 Quảng Nam
2 Cao Bằng 18 Bình Định
3 Lạng Sơn 19 Phú Yên
4 Bắc Kạn 20 Khánh Hoà
5 Lào Cai 21 Ninh Thuận
6 Yên Bái 22 Lâm Đồng
7 Tuyên Quang 23 Gia Lai
8 Điện Biên 24 Kon Tum
9 Lai Châu 25 Đắc Lắc
10 Sơn La 26 Đắc Nông
11 Hoà Bình 27 Bình Phước
12 Phú Thọ 28 An Giang
13 Thanh Hoá 29 Bạc Liêu
14 Nghệ An 30 Cà Mau
15 Hà Tĩnh 31 Kiên Giang
16 Quảng Bình

Table 20: List of eligible districts (Zone 2) in 9 other provinces for fix 2% top-up

No Province District, town No Province District, town

1 Thái Nguyên 1. Võ Nhai 6 Quảng Ngãi 1. Tây Trà
2. Định hoá 2. Sơn Tây
2 Bắc Giang 1. Sơn Động 3. Lý Sơn
1. Tiên Yên 1. Hàm Thuận
3 Quảng Ninh 7 Bình Thuận
Bắc
2. Bình Liêu 2. Bắc Bình
3. Ba Chẽ 3. Tuy Phong
4. Hải Hà 4. Phú Quí
5. Đầm Hà 8 Đồng Tháp 1. Tháp Mười
6. Móng Cái 2. Tam Nông
4 Quảng Trị 1. Hương Hoá 3. Hồng Ngự
2. Đăkrông 4. Tân Hồng
3. Bến Quan 9 Sóc Trăng 1. Cù Lao Dung
5 Thừa Thiên Huế 1. Nam Đông
2. A Lưới

71
Decision 568/XD-QĐ-TGĐ of Petrolimex 30 September 2009

41
 5.4. Gas, Coal and firewood

Gas is used for cooking in urban area and richer groups in rural areas. A larger volume of gas is being
imported and prices are increasing. No subsidy is provided.

Firewood, beehive and low quality coal are being used by low-income households in both rural and
urban areas for cooking, as a substitute for electricity and gas. Though it is cheap there is no
evidence of subsidy. However, it is clearly a “dirty” fuel, which does not only emit greenhouse gas
but also fumes that are harmful for human health.

6. Conclusion
The main body the report details much of the findings and conclusions for each section as well as
recommendations for each sector.

6.1. Electricity market

 Electricity prices are sure to see upward pressures on price in the future, which will impact
on all users.

 A rethinking of the electricity pricing structure as well as the creation of a more level playing
field for domestic and international companies will make investment in electricity
generation more attractive to investors.

 Increased investment will allow for a more rational investment in different electricity
generation options, which may move away from a reliance on coal as targeted in the
National Plan for electricity.

 The Government needs to accelerate reforms in the electricity sector and reduce the role of
EVN in order to bring more players in generation as well as retail sales of electricity to
ensure that investment continues and that supply can meet demand.

 The increased reliance on coal will require a considerable rethinking of the pricing policy for
domestic and imported coal especially for the electricity sector. The current structure will
continue to force losses on enterprises in the electricity market.

 Losses in the electricity sector as incurred under the current price capping system for
electricity and coal cannot be quantified or easily rectified, which is a further reason for
bringing the pricing system in-line with the cost of production.

 Increased competition in generation and retail would allow the sector to identify
appropriate costs themselves.

 A less ad hoc system of support for the low income groups needs to be identified in order to
reduce the impact of electricity price rises on the poor. A system of grants such as
implemented with the recent electricity price rise is a move in the right direction, but further
analysis of the use of electricity by the poor should be carried out to identify the impact of
price rises and the appropriate level of cash grants to compensate the low income groups.

42
  Several industries have benefited considerably from low electricity prices and also low prices
for coal. The role of low energy costs in the competitiveness of these industries needs to be
examined in detail to assess to what degree they are inefficient in their energy use and to
what extent price increases will impact these industries.

 The focus of the National Plan for electricity is focused on the expansion of generation
facilities. Regulations and guidance do exist to encourage energy efficiency by electricity
users. However, the current pricing system does not encourage efficient use of electricity as
prices are generally quite low, which discourages firms from investing in energy saving
technologies, efficient use of electricity and the saving of electricity: little benefit is seen
from investing in technology as returns will not be great.

6.2. Refined Petroleum

 Global refined petroleum prices remain unstable and subject to considerable fluctuation.

 The costs of keeping prices low will increase even if world prices remain stable as demand
for refined petroleum is will rise in Viet Nam in the future.

 While the direct cost to the poor and households will vary depending on their consumption
of refined petroleum, the indirect costs will be also be costly, including the increased costs
for goods transported to rural areas as well as input costs increases such as fertilisers.

 The impact of both direct and indirect price increases must be calculated and support
measures designed to ensure the poor do not bear more than they can cope with.

 If the Government continues to pursue stable pricing then it will need to look at a more
efficient system to ensure stable prices when the global prices are high. There is a danger
that the Government will continue to use tax waivers as a means to ensuring price stability.
Such a mechanism will reduce Government revenue from the sale of refined petroleum,
leaving the Government with fewer resources to support poorer households.

6.3. Government Subsidies

Most subsidies on fossil fuels in Viet Nam are indirect and as a result very hard to quantify. It is also
difficult to identify who the target groups of these subsidies are or if they are benefiting from the
subsidies.

Viet Nam’s current electricity pricing structure and petroleum pricing structure are such that much
of the Government support goes to state owned enterprises. In turn, these enterprises blame the
system that is in place to ensure equitable access for their own losses.

The system also negatively impacts the oversight and management of these enterprises as losses
due to weaknesses in the pricing, Government support system and financial structure in Viet Nam
and weaknesses within enterprises themselves can not be differentiated. Therefore losses cannot be
assigned and a true picture of the market taken.

Table 21 is an amalgamation of direct and indirect support using the OECD/ UNEP framework.

43
 Table 21: Direct and Indirect Subsidies to the Energy Sector 72

Subsidy format (ref section 1.3) Subsidy Tool

a. Direct financial transfers Low-interest or Government

Grants to Grants to
preferential loan
consumers producers
loans guarantees
b. Preferential tax treatment Exemptions on
Tax credits, tax Deferred tax Reduced tax
royalties duties
rebates liabilities rates
or tariffs
c. Trade restrictions Tariff-rate Non-tariff
Tariffs
import quotas trade barriers
d. Energy-related services Government- Public research
provided directly by provided and
government at less than full energy development
cost infrastructure on fossil fuels
e. Regulation of the energy Mandated
Demand Environmental Market-access
sector deployment Price controls
guarantees regulations restrictions
rates

The findings of this report regarding revenues accruing to the Government in recent years show that
increased use of fossil fuels has meant increased revenues through taxation and VAT. The addition of
an environmental tax or increased fuel taxes should increase revenues and as this would force prices
up it may also have the added effect of forcing a reduction in use of fossil fuels or a consideration for
more efficient use of fossil fuels.

However, data in this report also show that revenues have not grown at the same pace as growth of
the market. Three issues may underline this but more research will need to be done.

Firstly, there may be a problem in the collection of taxes and VAT in general in Viet Nam that does
not ensure that all revenue is collected. Taxes and VAT are of a mixed modality, with fixed fees (as in
the case of the petroleum fee which is VND1,000 per litre) or a percentage (VAT is 10%). This means
growth in the market may not necessarily be reflected by a growth in revenue. Any tax regime
should ensure that revenues keep up with growth in the market.

Secondly, with no subsidies the Government has used tax waivers in order to stabilise and limit the
increase in prices. While importers, wholesalers, retailers and producers may benefit, Government
revenue does not. Taxation and VAT is also very complicated, especially in the petroleum sector with
numerous taxes that the Government can defer or hold back, which complicates revenue collection.
The additional of environmental taxes may further complicate the taxation system.

The Government needs to restructure the taxation and pricing system, especially for petroleum to
bring more clarity and also make managing revenues easier.

Finally, price capping across the energy market and forced sales of inputs and energy at below
international prices and production costs is leading to losses for many state owned enterprises in
different sectors. This acceptance of losses by SOEs due to the pricing system allows them to also

72
Green means subsidy, direct or indirect, normally in place, yellow is support available at certain times or for
certain participants in the sector. Red means not yet in force.

44
hide other losses due to poor investments and mismanagement. More dangerously, losses in SOEs
mean no or lower than expected transfers to the state budget from SOEs, again impacting revenues.

So what could be the source of financing for subsidies in the energy sector in Viet Nam, as the SOEs
are making losses and the state revenue is sometimes shrinking due to very often “sudden and
temporary” exemptions of taxes and fees. The State will sometimes bail out the SOEs with low
interest loans for example, directly or indirectly through state owned banks, and thus take some of
the losses.

Otherwise, the transfer of losses as a form of indirect subsidies can only come from the SOEs, which
are operating in the area of natural resources exploitation such as coal, gas, and crude oil. The last
source of “subsidy” are the natural resources themselves, such as oil and coal, which are sold at
below market prices into the different markets.

Analyzing this fact and following the value chain for fossil fuels also led the team to a conclusion that
there has for long been a covered and complicated system which allows the SOEs to exploit the
natural resources for financing their losses with the excuse of subsidizing some target groups or
keeping the economy stable. The possible quantification of subsidies, in this situation, requires
further enquiry.

6.4. Next Steps

This study was limited by time, access to data, whilst assessing a dynamic market: the fossil fuel
market is changing rapidly. Changes over the last few months in pricing for electricity as well as the
implementation of new competitive rules for the generation market, in addition to new price
structures for the refined petroleum market will take some time to show results and impacts.

As a result this study should be revisited in 6 to 12 months time to review the impacts on pricing and
fossil fuel use of :-

 Increased global oil prices and the role of the governments stabilization fund
 The impact of revised regulations in the electricity market allowing for quarterly revisions of
the price of electricity and the use of this new power by EVN.
 The impact of the move towards a more competitive market for electricity generation and
the operation of new purchasing agreements between generators and EVN and the impact
of this on electricity access.

In addition several more detailed studies need to be considered to go deeper and offer the
Government greater options in the management of fossil fuel use markets.

 In electricity the government should look closely at revising the Electricity law with a view
to accelerating competition across the market bring competition in wholesale and retail
forward ahead of the current strategy.

 EVNs role as monopoly retailer and purchaser of electricity should be reviewed with a focus
on its losses, i.e. to ascertain whether the firm is losing money due to the current pricing
structure or mismanagement of state assets and investments.

45
 A review of coal demand and pricing. Higher prices for coal in Viet Nam, in-line with global
prices may make investment in coal powered plants as detailed under the National Plan VI
less attractive and force a rethinking towards more cleaner energy production.

 A review of the National Plan and electricity law should also put renewable and clean
energy methods central to electricity production in Viet Nam and not on the periphery as
they are now.

 Pricing and taxation in the refined petroleum market should be reconsidered and a move
away from ad hoc adjustments designed. Countries all over the word have systems that
ensure pricing reflects global prices and delivers Government.

46
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 ANNEX 1: Terms of Reference for the study

A. PACKAGE 1 – VALUE CHAIN AND POLICY ANALYSIS OF FOSSIL FUEL TRADE, SUBSIDY AND TAX

A.1. Scope of Work

Value chain and fossil fuel policy analysis is crucial to understand fuel markets, including how
consumers and industries are affected by subsidies and (possibly) fees and taxes. It is important to
distinguish the various types of fuel and to identify the major actors in these markets. The analysis
should provide information on and analysis of direct and indirect subsidies (State support) to
different fossil fuels and their producers, traders and users, as well as fees and taxes, and provide an
overview of the main actors in the market, profits, and the fiscal burden they are facing.

Fossil fuels could be grouped in functional categories such transportation (gasoline, diesel),
electricity generation (coal, gas, oil), industrial use (coal, gas, oil, electricity), cooking (bottled gas,
beehive coal, kerosene, electricity), and other household use including lighting (electricity,
kerosene). Moreover, the fossil fuel types have principal users. For example diesel is used primarily
by trucks and public transport, whereas gasoline is mainly for motorbikes and cars. Bottled gas,
electricity, kerosene and beehive coal are used for cooking by different income groups, with better
off households usually favouring electricity and gas.

Different subsidies are in place in Viet Nam. For example, kerosene is commonly used for lighting
and also cooking in remote areas, and transportation costs are often subsidised. State-owned fuel
traders, electricity producers and the various sectors of the economy such as the steel, cement,
electricity production or transport seem to experience different direct and indirect subsidies and
price regulations regarding fossil fuels. Such particularities in the fuel markets are critical for
anticipating the distributional effects as well as investment behaviour of enterprises as a result of
removing (certain) fuel subsidies and introducing or increasing different fossil fuel taxes and fees.

Key operators in fossil fuel markets in Viet Nam include state owned firms that are responsible for
an important part of revenue through transfers of profits to the State and local authorities. In other
words, taxes and fees (existing or new) are not the only source of State revenue, and must be
assessed

The following should be undertaken by a small team of economic policy analysts:

(a) Analyse the current energy policy landscape and the energy market in Viet Nam, with a focus on
the production, trade and retail of different fossil fuels, including use by consumers and
industry. The analysis should include interventions such as price ceilings; direct and indirect
subsidies and other support measures for state owned and private companies; (enterprise, VAT)
taxes; possibly (local) fees; as well as the overall costs and benefits from production and trade in
fossil fuels by key operators. It should include indirect state intervention in the energy markets
such as concessional loans and other support, as well as transfer of profits from state owned
firms to the national and local authorities. Estimates of total revenue as well as State
expenditure should be made, for recent years.

(b) Make recommendations on the potential effects of removal of subsidies and introduction of
fossil fuel taxes on revenue collection in Viet Nam including potential effects on profits of state
owned enterprises and their transfers to the central and local authorities. Analyse the potential
for financing social measures, and make recommendations for further studies including

53
 modelling of removal of certain subsidies and of different taxation scenarios and support
measures in fuel markets. Make recommendations on how to minimize potential negative
economic impacts of fuel tax and how to create a “double dividend” for environmental quality
and long-term growth, whilst maintaining social fairness.

This work will be based on desk research / (grey) literature review, and key informant interviews in
Ministries, research organisations, and enterprises. No field surveys are expected to be
implemented. Analysis and conclusions should be compared with analysis in other countries, partly
based on the literature review undertaken by the Policy Advisors Team (UNDP), as reflected in these
TOR.

The team is expected to present draft conclusions at an expert workshop (discussed below under
package 2), and finalise their report based on discussions there, as well as take into account written
comments from the UNDP Policy Advisors Team.

A.2. Deliverables/ Outputs

The contractor will:

1) Develop a work plan for submission to UNDP. The proposal should outline the steps, inputs,
and deadlines the contractor believes are necessary.
2) Conduct desk research / (grey) literature review
3) Do key informant interviews, mostly but not only in Hanoi
4) Present initial results to stakeholders for validation in first stakeholders workshop (see
package 2)
5) Make available a draft report for written comments from UNDP advisors and other
stakeholders
6) Produce a final analytical report in English and Vietnamese that reflects well the collected
data and the comments from UNDP advisors and other stakeholders.

The contractor will reflect the following in the report:

 Collect, analyse and make available (in annex) the various official regulations regarding price
regulation, direct and indirect subsidies (such as concessional loans), various taxes and
(possible, local) fees for different fossil fuels, fossil fuel producers and users
 Analyse other support measures for state owned and private companies and asses the
overall costs and benefits from production and trade in fossil fuels by key stakeholders
 Assess the transfer of profits from state owned firms in the fossil fuel markets (production,
trade, retail) to the national and local public budget.
 Make estimates of total revenue as well as State expenditure, for recent years; of the
potential effects of fossil fuel taxes on revenue collection in Viet Nam; and of the potential
for financing social measures. Propose further study including suggestions for modelling of
phase out subsidies and support measures and different taxation scenarios in fossil fuel
markets; and on how to minimize potential negative economic impacts of fuel tax and to
create a “double dividend” for environmental quality and long-term growth.
 Include a list of literature and resource persons contacted

54
A.3. Durations of Assignment, Duty Station and Expected Places of Travel

Up to a combined total of 25 working days are expected, predominantly by national experts but
including some backstopping by an international expert, within the period from January to February
2011. The international expert may advise on design and draft findings – from home base. The
national experts are expected to interview various stakeholders in Viet Nam, mostly but not only in
Hanoi.

A.4. Degree of Expertise and Qualifications

The contractor should have a deep understanding of the Vietnamese fiscal system as well as the
Vietnamese administration. Fluency in the Vietnamese language is crucial for core members of the
team. The experts should also be familiar with prices and fuel market mechanisms in Viet Nam in
order to produce an analysis. The team’s expertise must include good understanding of climate
change, including greenhouse gas emissions in Viet Nam and specifically knowledge of energy
production, trade and consumption in Viet Nam. The expertise of the team should include in depth
knowledge of similar questions in other developing countries. Team members should hold secondary
degrees in relevant subjects and have minimally 10 years working experience. All should have basic
fluency in English, and at least one should have excellent English.

The contractor will propose maximum 3 team members including possibly an international
backstopper, and one of whom is the team leader. The team leader will have overall responsibility
for the quality and timely submission of the final output.

55
 ANNEX 2: ASEAN Electricity Tariffs, February 2011
No Country Residential Commercial Industry Source
1 Brunei Monthly Block 1 = 10 units x B$0.25 Monthly Block 1 = 10 x KVA x B$0.20 Average Selling Cost for Oil and Gas : Department of
Darussalam = B$2.50 Next Block 2 = 100 x KVA x B$0.07 B$0.050 Electrical Services
Next Block 2 = 60 units x B$0.15 = Next Block 3 = 100 x KVA x B$0.06
B$9.00 Remaining Block = (Remaining unit) x
Next Block 3 = 100 units x B$0.10 = B$0.05
B$10.00 Average Selling Cost : B$0.055
Remaining Block = (Remaining unit) x
B$0.05
Average Selling Cost : B$0.060
2 Cambodia • 390 Riels/kWh : All kWh if • For small commercial customers : Tariff • For small industrial customers : Tariff Electricity Authority of
consumption up to 50 kWh/Month rate = average cost of total electricity rate = average cost of total electricity Cambodia
• 610 Riels/kWh : All kWh if purchased in previous month + 3.6 US purchased in previous month + 3.6 US
consumption between 51 to 100 Cents/kWh Cents/kWh
kWh/Month • For medium commercial customers : • For medium industrial customers : Tariff
• 720 Riels/kWh : All kWh if Tariff rate = average cost of total rate = average cost of total electricity
consumption more than 100 electricity purchased in previous month + purchased in previous month + 2.8 US
kWh/Month. 2.8 US Cents/kWh Cents/kWh
• For big commercial customers : Tariff • For big industrial customers : Tariff rate
rate = average cost of total electricity = average cost of total electricity
purchased in previous month + 2.4 purchased in previous month + 2.4
USCents/kWh USCents/kWh
• For commercial Customer who is • For industrial Customer who is directly
directly connected to MV : Tariff rate = connected to MV : Tariff rate = average
average cost of total electricity purchased cost of total electricity purchased in
in previous month + 2.0 USCents/kWh previous month + 2.0 USCents/kWh
3 Indonesia • 450 VA : Rp. 415/kWh • 450 VA : Rp. 535/kWh • 450 VA : Rp. 485/kWh Perusahaan Listrik
• 900 VA : Rp. 605/kWh • 900 VA : Rp. 630/kWh • 900 VA : Rp. 600/kWh Negara (PLN), June 30,
• 1,300 VA : Rp. 790/kWh • 1,300 VA : Rp. 795/kWh • 1,300 VA : Rp. 765/kWh 2010
• 2,200 VA : Rp. 795/kWh • 2,200 VA s.d 5,500 VA : Rp. 905/kWh • 2,200 VA : Rp. 790/kWh
• 3,500 s.d 5,500 VA : Rp. 890/kWh • More than 6,600 VA : Rp. 1,100/kWh • 3,500 VA s.d 14 kVA : Rp. 915/kWh

56
 • More than 6,600 VA : Rp.
1330/kWh
4 Lao P.D.R • Form 0 - 25 kwh : LAK 269/kWh • Low Voltage System_Non - Residental • Low Voltage System_Non - Residental Electricite Du Laos,
• Between 26 - 150 kwh : LAK 0.4 kV : LAK 835/kWH 0.4 kV : LAK 591/kWH 2011
320/kWh • Medium Voltage System 22kV : LAK • Medium Voltage System 22kV : LAK
• Upper 150 kwh : LAK 773/kWh 709/kWh 502/kWh
5 Malaysia • TNB (Peninsula Malaysia) : 35.79 • TNB (Peninsula Malaysia) : 30.22 • TNB (Peninsula Malaysia) : 24.47 Ministry of Energy,
sen/kWh sen/kWh sen/kWh Green Technology and
• SESB (Sabah) : 22.67 sen/kWh • SESB (Sabah) : 34.50 sen/kWh • SESB (Sabah) : 34.00 sen/kWh Water
• SESCO (Serawak) : 32.00 sen/kWh • SESCO (Serawak) : 34.67 sen/kWh • SESCO (Serawak) : 32.33 sen/kWh
6 Myanmar Flat Rate 25.00 Kyat/kWh Flat Rate 50.00 Kyat/kWh Flat Rate 50.00 Kyat/kWh Myanma Electric Power
Enterprise
7 Philippines • Area Luzon : 4.6201 P/kWh N.A N.A National Power
• Area Visayas : 4.0230 P/kWh Corporation
• Area Mindanao : 2.9193 P/kWh
8 Singapore All unit 25.79 ¢/kWh • High Tension Small (HTS) Supplies • High Tension Small (HTS) Supplies Singapore Power,
Peak period (7am to 11pm) : 23.56 ¢/kWh Peak period (7am to 11pm) : 23.56 ¢/kWh Revision of Electricity
Off-peak period (11pm to 7am) : 14.48 Off-peak period (11pm to 7am) : 14.48 Tariffs from January
¢/kWh ¢/kWh 1st, 2011
• High Tension Large (HTL) Supplies • High Tension Large (HTL) Supplies
Peak period (7am to 11pm) : 23.40 ¢/kWh Peak period (7am to 11pm) : 23.40 ¢/kWh
Off-peak period (11pm to 7am) : 14.47 Off-peak period (11pm to 7am) : 14.47
¢/kWh ¢/kWh
• Extra High Tension (EHT) Supplies • Extra High Tension (EHT) Supplies
Peak period (7am to 11pm) : 22.33 ¢/kWh Peak period (7am to 11pm) : 22.33 ¢/kWh
Off-peak period (11pm to 7am) : 14.29 Off-peak period (11pm to 7am) : 14.29
¢/kWh ¢/kWh
9 Thailand • 0 - 150 kWh/month : 1.80 • > 69 KV : 1.67 THB/kWh • > 69 KV : 2.61 THB/kWh (Peak) and 1.17 EGAT, Thailand
THB/kWh • 22 - 33 KV : 1.70 THB/kWh THB/kWh (Off Peak)
• 151 - 400 kWh/month : 2.78 • < 22 KV : 1.73 THB/kWh • > 69 KV : 2.69 THB/kWh (Peak) and 1.19
THB/kWh THB/kWh (Off Peak)
• > 400 kWh/month : 2.98 THB/kWh • > 69 KV : 2.84 THB/kWh (Peak) and 1.22
THB/kWh (Off Peak)

57
10 Viet Nam • 0 - 50 kWh : VND 600 /kWh 1. Transformer capacity below 1 >100 MVA EVN, Viet Nam
(Needs • 51 - 100 kWh : VND 1,004 /kWh a) Off-peak hour 1,846 VND/kWh a) Off-peak hour 875 VND/kWh
Updating) • 101 - 150 kWh : VND 1,214 /kWh b) Peak hour 3,193 VND/kWh b) Lower hour 483 VND/kWh
• 151 - 200 kWh : VND 1,594 /kWh c) Lower hour 1,065 VND/kWh c) Peak hour 1,714 VND/kWh
• 201 - 300 kWh : VND 1,722 /kWh 2. Transformer capacity from 6 kV to 22 2 From 50 MVA to 100 MVA
• 301 - 400 kWh : VND 1,844 /kWh kV a) Off-peak hour 871 VND/kWh
• > 401 kWh : VND 1,890 /kWh a) Off-peak hour 1,766 VND/kWh b) Lower hour 479 VND/kWh
b) Peak hour 3,028 VND/kWh c) Peak hour 1,706 VND/kWh
c) Lower hour 1,037 VND/kWh 3 < 50 MVA
3. Transformer capacity from 22 kV and a) Off-peak hour 859 VND/kWh
above b) Lower hour 473 VND/kWh
a) Off-peak hour 1,648 VND/kWh c) Peak hour 1,686 VND/kWh
b) Peak hour 2,943 VND/kWh
c) Lower hour 902 VND/kWh

58
ANNEX 3: Retail Petroleum Prices in ASEAN Member Countries

No Country Diesel Gasoline Update Source

1 Brunei Darussalam US$ 31 US$ 53 (local) Ministry of Energy, January 11th, 2008
1.18 Brunei dollars (foreign-
registered vehicles) The Brunei government's Petroleum Unit, June 18th, 2008
The Commerce Ministry’s Trade Promotion Department,
2 Cambodia 4,300 Riel 4,550 Riel May 26th, 2010
Ministry of Energy and Mineral Resources, January 12th,
3 Indonesia Rp 4,500 Rp 4,500 2009
4 Lao P.D.R 7,730 Kip 9,040 Kip Vientiane Petroleum State Enterprise, December 16, 2010
Minister of Domestic Trade, Cooperative and Consumer
5 Malaysia RM 1.9 RM 2.3 Affairs, December 1st, 2010
6 Myanmar K3000 a gallon K2500 a gallon Ministry of Energy, November 15th, 2010
7 Philippines P 33.50 P 42.50 Chevron Philippines, June 2010
8 Singapore $SGD 1.69 $SGD 1.75 PetrolWatch, December 2010
9 Thailand Baht 38.10 Baht 51.96 Shell, via Department of Energy, December 17th, 2010
10 Viet Nam VND14,750 VND16,900 Petrolimex, October 22nd, 2010
11 Viet Nam VND21,100 VND21,300 Petrolimex, 31st March 2011

59
 ANNEX 4: Regulations guiding the Fossil Fuel Market
Issuing
Sector Name Number Date Area Content Brief description Main beneficiaries
authority
On 1 march 2010, Coal prices exclusive of VAT for EVN's electricity production for
Prices of coal sold to electricity delivery at the warehouses, wharves, ports of TKV as follows: 4b TCVN coal is
2379/BTC 26-Feb-
Coal Letter MoF Pricing production increased from 28 to 648,000 VND per ton, up 47%, coal 5 TCVN is 520,000 VND / ton , up 28%. The coal
-QLG 10
47% without the need to use is coal TCVN 6a priced at VND 450,000 per ton and coal 6b
TCVN at 395,000 VND per ton.
Announce 244/TB- 11- Selling price of coal to domestic Prices of coal sold for domestic consumption
Coal OOG Pricing
ment VPCP Aug-09 use (excluding coal sold to power) lower than export prices up to 10%;
amending code numbers and
export duty rates applicable to To further detail the code numbers and to amend the export duty rates applicable
51/2009/ 17- Export
Coal Circular MoF wood charcoal1 or group 44.02 to charcoal being Group 44.02 goods on the Preferential Import and Export Tariff
TT-BTC Mar-09 tariffs
lines of goods on the export tariff Lists. The list if attached.
list.
Development viewpoints: To develop the coal industry on the basis of mining,
processing and using in an efficient and economical manner domestic coal
resources; To develop the coal industry in a sustainable, effective and
comprehensive manner to keep pace with the development of other industries.
In terms of development goal, the coal exploration: To strive to completely explore
and assess the northeastern coal basin’s natural resources below the -300m level
and thoroughly explore part of natural resources of the Red River delta’s coal basin
by 2010; to completely explore and assess natural resources of the Red River
approving the strategy on
delta's coal basin by 2015. To step up exploration for increasing verified coal
development
89/2008/ 7-Jul- Prime reserves and upgrading existing reserves in order to ensure sufficient reliable coal
Coal Decision Strategy of Viet Nam’s coal industry up to
QD-TTg 08 Minister reserves to be mined during 2008-2025. Coal market: The coal industry will switch
2015 and orientations towards
to operate under the State-controlled market mechanism integrated into regional
2025
and international markets;
Coal sieving, sorting and processing: From now to 2015, to strive to develop coal
processing in the direction of diversifying products (instant fuel, coal used for
metallurgy, gasified coal, liquid fuel from coal, raw materials for the chemical
industry, etc.).
Coal prices should be set according to the market mechanism, for the purpose of
integration into regional and world markets. Coal prices shall be regulated by the
State through tax policies and other management instruments.
Ministry State management
Export Guiding the coal export; conditions
05/2007/ 22-Oct- of Trade Conditions coals can be exported: Having legal origin; Meeting the quality agencies (in terms
Coal Circular regulatio and quality standards of export
TT-BCT 07 and standards or equivalents to the quality standards of exports activities
ns coal
Industry management)
Regulating entities inlcudes enterprises engaged in coal trading activities in
04/2007/ 22-Oct- Guiding the coal trading
Coal Circular MOIT Trading Vietnamese territory, including domestically trading, import, export,
TT-BCT 07 conditions.
transportation, warehousing and agencies.
Coal Circular 05/2007/ 22-Oct- MOIT Export Guilding the coal export It regulates various conditions for coal exporting traders to follow, including

60
 Issuing
Sector Name Number Date Area Content Brief description Main beneficiaries
authority
TT-BCT 07 regulatio effective lisences, contracts, and valid documents to prove legal sources of coals
ns explored for exports or imports. report regime for the coal exports and imports are
also specified. Traders need to register their coal export plan to MOIT. At the same
time, they need to submit list, conditions and quality standards of exported coal as
well. Technical requirements for exports of diffferen types of coals are also
specified.
Orientations for the development of coal industry: coal must be done in an
economical
and efficient manner; sustainably develop the coal industry;
The production output of merchandise coal is estimated at the following levels: By
2005: 16-17 million tons; By 2010: 23-24 million tons; By 2015: 26-27 million tons;
By 2020: 29-30 million tons. The merchandise coal output may be adjusted to suit
Approving the development the market demand in each period, taking into consideration the importation of
planning for Viet Nam's coal coal on the basis of balancing the common efficiency of the economy.
20/2003/ 29-Jan- Prime
Coal Decision Strategy industry in the 2003-2010 period, The total investment capital for the 2003-2010 period is estimated at about VND
QD-TTg 03 Minister
with the prospects till 2020 taken 14,166 billion, in which: Capital for investment in maintenance, expansion and
into consideration construction shall be about VND 12,933 billion; Additional capital for business
activities shall be about VND 1,233 billion.
Responsibilities of different relevant ministries are specified, in which the Ministry
of Finance are to submit to the Prime Minister for decision on reasonable selling
prices of coal for four big coal consumers, namely electricity, cement, paper and
fertilizer industries, on the principle of fully covering reasonable production costs,
then striving to apply coal selling prices under the market mechanism by 2006
prescribing the preferential import
tax rate for a number of explosion-
To apply the import tax rate of 0% (zero per cent) to a number of explosion-
preventing machinery and
38/2002/ 17-Jan- Prime Import preventing machinery and equipment for exclusive use in pit coal mining as well as
Coal Decision equipment for exclusive use in pit
QD-TTg 02 Minister Tariffs a number of supplies and equipment for manufacture and assembly of such
coal mining as well as a number of
machinery and equipment
supplies and equipment for
manufacture and assembly thereof
Applied to the organizations, individuals who participate in activities of electricity
and use electricity.
Average electricity selling price means the price is defined in accordance with
principle of average calculation per 01 KWh of electricity, including 04 components:
on the adjustment of electricity price of electricity generation, price of electricity transmission, price of electricity
24/2011/ 16-Apr- Prime selling distribution, cost of management and administration and electricity system
Electricty Decision Pricing
QD-TTg 11 Minister price according to market supporting services; hereinafter called as electricity selling price.
mechanism In the financial year, electricity selling price is adjusted just when the basic input
parameter changing compared to the parameter which is used to define the
current electricity selling price. Other input parameter of electricity selling price are
considered to adjust electricity selling price only after having accounting, audit
reports according to the provisions; duration of adjustment is every 3 months.
Electricty Circular 05/2011/ 25-Feb- MOIT Pricing Regulating the selling price of Applied to all organizations, individuals buying and selling electricity from national Benefiticiaries tend

61
 Issuing
Sector Name Number Date Area Content Brief description Main beneficiaries
authority
TT-BCT 11 electricity in 2011 and supply network; to be I favour of
implementation guildlines average selling price of electricity for 2011 is 1.242VND/Kwh (VAT excl); EVN- individual users for
EPTC's average wholesale price to electricity companies: 891,4 VND/kwh; whole purposes of daily
sale price for other purposes (rather than for daily life and irrigation) is life
1.012VND/kwh. The circular also specifies various methods of calculating selling
prices of electricity to different buyers from rural areas to industrial parks.
Principles on developing retail prices: prices are regulated based on different users:
production,
businesses; administrative agencies, residents. Selling prices at different range of
time within a day are specified for users of big amount of electricity like for
production and businesses.
268/QD- 23-Feb- Prime
Electricty Decision Pricing Regulating electricity retail prices The poor household according to GoV criteria shall be subsidised for 50kwh/month;
TTg 11 Minister
the subsidy amount is 30,000VND/month. Budget for subsidy comes from
electricity selling.
The Ministry of Finance and MOIT to coordinate to issue subsidy regime for poor
families. And MOLISA shall receive subsidy to allocate to different
localities/provinces.
Applied to all organizations, individuals buying and selling electricity from national
supply network;
Benefiticiaries tend
average selling price of electricity for 2010 is 1.058VND/Kwh (VAT excl); EVN-
Regulating the selling price of to be in favour of
08/2010/ 24-Feb- EPTC's average wholesale price to electricity companies: 718,1 VND/kwh;
Electricty Circular MOIT Pricing electricity in 2010 and individual users for
TT-BCT 10 wholesale price for rural irrigation is 703 VND/kwh.; whole sale price for other
implementation guildlines purposes of daily
purposes (rather than for daily life and irrigation) is 1.010VND/kwh. The circular
life
also specifies various methods of calculating selling prices of electricity to different
buyers.
The Law aims to stimulate development and diversify forms of investment in the
electricity sector, encourage economical use of electricity, protect the country’s
electricity infrastructure and develop a competitive electricity market.
The output target of 44bn kWh by 2005, set out in the five year plan passed by the
Party’s National Congress IX in April 2001, was met on 10 December 2004, over a
year ahead of schedule;
Yet, much work remains to be done to meet the new and more ambitious targets of
53bn kWh by the end of 2005, 88-93 bn kWh by 2010 and 201-250bn kWh by 2020
1-Jul- National
Electricty Law n/a Law Electricity Law as laid down in the Strategy for Electricity Development set out .
05 Assembly
Planning for electricity development is the first issue addressed in the Electricity
Law.
The Law sets forth policy on electricity pricing, including to implement and then
gradually reduce and eliminate a reasonable price cross-subsidy regime between
different groups of customers; and to ensure the right of entities purchasing and
selling electricity on the electricity market to make their own decisions on the price
of purchase and sale of electricity within the electricity tariff stipulated in the state
regulations.
Electricity Law 28/2004- 3-Dec- National Law Viet Nam electricity law This Law regulates planning and investment in the development of electricity;

62
 Issuing
Sector Name Number Date Area Content Brief description Main beneficiaries
authority
QH11 04 Assembly saving electricity power market, rights and obligations of organizations and
individuals engaged in electricity activities and electricity use, protection of
electrical equipment, electricity works and electric safety.
Specific objectives: Meet electricity needs for social.-economic development-
Striving to output in 2005 reached about 53 billion kWh, in 2010 output from about
88 to 93 billion kWh, in 2020 output from 201 to 250 billion kWh; Accelerate the
program of stringing electricity to the countryside, mountaineous areas, striving in
2010 to reach 90% of rural households having electricity, 2020, 100% of rural
households having electricity.
approving the strategy on Development of coal thermal powerstations: expected in 2010 with a total capacity
development of Viet Nam of 4,400 MW. Period 2011 - 2020 required the construction of around 4500-5500
176/2004 5-Oct- Prime
Electricity Decision Strategy electricity industry in the 2004- MW (base load), from 8000 to 10,000 MW (high load). Due to the fact that
/QD-TTg 04 Minister
2010 period, with orientations domestic coal resources are limited, consider the construction of power plants
towards 2020 using imported coal.
Gas thermal power: up to 2010 with total capacity of about 7,000 MW, the period
from 2011 to 2020 to build about 3,500 MW (the gas supply facilities), in the case
of discovered gas resources needed to build more about 7,000 MW.
Investment surveys, research, preparing the conditions necessary to build the first
atomic power plant in Viet Nam with the capacity of 2,000 MW, is expected to
commence operation period after 2015 .
the overall objectives are to assure national energy security, contributing to firmly
maintaining security and defense and developing an independent and self-reliant
economy; to supply adequate high-quality energy for socio-economic development;
to exploit and use domestic energy resources in a rational and efficient manner; to
diversify forms of investment and business in the energy domain, and develop an
energy market
conducive to fair competition; to boost the development of new and renewable
energies,
bio-energy and nuclear power in order to meet the requirements of socio-
economic development, especially in deep-lying, remote and border areas and
approve Viet Nam's national
offshore islands; and developing the energy sector in a quick, efficient and power sectors:
Energy 1885/QD- 27-Dec- energy development strategy up to
Decision Strategy sustainable manner in association petroleum,
General TTg 07 2020, with
with environmental protection. electricity, coal...
2050 vision
Specifically: To strive to supply adequate energy for society-economic
development, including about
47.5 - 49.5 million TOE (ton of oil equivalent) of primary energy by 2010, about 100
-110 million TOE by 2020, 110 - 120million TOE by 2025 and 310-320 million TOE by
2050.; To develop electricity sources and grids, to meet electricity demands for
socioeconomic development, by 2010, the supply reliability of electricity sources
will reach 99 .7%; and electricity grids will reach n-I standard.
- To develop oil refineries, step by step satisfy domestic demand for oil product,
and increase the total capacity of oil refineries to 25-30 million tons of crude oil by
2020; - To raise the level of national strategic petrol and oil reserves to the

63
 Issuing
Sector Name Number Date Area Content Brief description Main beneficiaries
authority
equivalent of 45 days of average consumption by 2010, 60 days by 2020 and 90
days by 2025; - To strive to increase the proportion of new and renewable energies
to about 3% of the total amount of commercial primary energy by 2010; a+G10bout
5% by 2020 and 11% by 2050.; - To complete the program on rural and
mountainous energy. To increase the rate of rural household using commercial
energy for cooking to 50% by 2010 and 80% by 2020. By 2010, 95% of rural
households will be supplied with electricity and by 2020, almost all
rura1 households will be supplied with electricity.
Energy 110/2007 18-Jul- Prime Master 6th Power development Master Decision of the Prime Minister dated July 18th 2007 on
Decision
General /QD-TTg 07 Minister Plan Plan National power development for the period 2006-2015 with outlook to 2025
This Law provides economical and efficient use of energy; policies and measures to
Energy
Energy 50/2010/ 17-Jun- National on economical and efficient use of promote economical and efficient use of energy; and the rights, obligations and
Law Conserv
General QH12 10 Assembly energy responsibilities of organizations, households and individuals in economical and
ation
efficient use of energy.
Detailed regulations and measures This Decree provides for statistics on energy use, key facilities using energy, energy
Energy
Energy 21/2011/ 29- to implement the Law on saving and efficiency in the agencies and units using state budget; labeling for
Decree GoV Conserv
General NĐ-CP Mar-11 economical and efficient use of energy facilities, equipment using energy, measures to promote energy saving and
ation
energy effective inspection and inspection on the use of energy saving and efficiency.
One of the objective mentioned in the AP is to
concertedly and synchronously implement related activities under NTP on Energy
Efficinency and Conservation, the biofuel development scheme and related others,
4103/QD- 3-Aug- Action Action Plan In response to climate
Environment Decision MOIT research and apply "low carbon emission technologies", take the advantage of
BCT 10 Plan change of MOIT
making green industry towards the development of low carbon economy; budget
for programmed implementation is taken from the state budget callocated to NTP
on CC's response for MOIT.
Sustainable development is mentioned; safety of resources; envionmental
protection is most prioritised by GoV in economic development; bio-diversification
preservation; petroleum and coal have been much used for daily life and
transportation;
Energy sector created great amount of emissions to the surrounding; currently
Energy
153/2004 17- Prime there are more than 1000 mines in operation exploiting more than 50 kinds of
Environment Decision Conserv Agenda 21
/QĐ-TTG Aug-04 Minister minerals; comprehensive solutions are stated; appropriate exploitation of natural
ation
resources; coal, gas and small-scale hydro-power are encouraged for use in stead of
woods;
system of policies and laws/regulations should be strengthened; financial tools are
used to encourage and support sustainable development; state budget to be more
allocated to this area;
Enterprises
Guiding tax incentives for
following
230/2009 8-Dec- environmental protection activities Tax exemption; tax rate; Enterprise
Environment Circular MoF Tax environmentatl
/TT-BTC 09 prescribed in the government's income tax incentives ; Value-added tax incentives
protecttion
Decree no. 04/2009/nd-cp
provisions
Environment Decree 102/2003 9-Mar- GoV Energy Energy Conservation and Energy a) To establish and notify energy standards for factory, building and equipment; To

64
 Issuing
Sector Name Number Date Area Content Brief description Main beneficiaries
authority
/ND-CP 03 Conserv Efficiency stipulate regulations and obligations; b) Nomination of energy manager; reporting
ation of actual achievement and rationalization plan; c) Implementation of energy
conservation in buildings; compliance with energy conservation standards for
designated equipment; d) Financial incentive; research and development;
education; management organization; labelling; energy diagnostics.
Target sector (transport, building, manufacturing, etc.), Method for measuring the
effect of the measure (energy consumption reduction, energy cost reduction, etc.)
Objective: exlpoitation of natural gas, targeting at 14 billion m3 per year by 2015
and 15 – 19
billion m3 per year by period 2016 – 2025; Development of gas marketL 17 – 21
Master plan development of gas billion m3/ year by 2015 and 22 – 29 billion m3/year by period 2016 – 2025.
459/QD- 30- Prime Master industry Gas price policy: Build method of prices calculation to sell gas to consumers fully
Gas Decision
TTg Mar-11 Minister Plan Viet Nam period to 2015 and reflect the actual cost of delivery, but must reflect the competitive value of the gas
orientation to 2025 with fuel gas market; Pricing policy applied to purchase gas from producers /
importers and gas on the basis of cost recovery and reasonable profit in the period
to 2018, then gradually promote the application of price gas competition to
determine the purchase price of gas.
Adjust tax rates for preferential
import of some products of
gasoline, oil under heading 2710
24/2011/ 23-Feb- Import
Gas/oil Circular MoF provided in the preferential import List is provided to every product
TT-BTC 11 Tariffs
tariff of import tax rates specified
in the new preference list issued
together with this Circular.
This Decree provides for activities of trading in liquefied petroleum gas and
conditions on liquefied petroleum gas trading on the market; Conditions on LPG
export or import; Rights and obligations of LPG exporters and importers; Conditions
on LPG production or processing; rights and obligations of LPG producers and
processors and many other aspects of trading in LPG.
107/2009 26- on trading of liquefied petroleum Ministry of Finance shall prescribe the LPG import duty rate suitable to each period
Gas Decree GoV Trading
/ND-CP Nov-09 gas and in accordance with international commitments, contributing to stabilizing
domestic production and consumption.
LPG selling prices are market prices controlled by the State and decided by LPG
wholesalers after paying taxes, charges and fees (if any) as prescribed by current
laws. Price valorization measures publicized by competent authorities shall be
applied under current laws
amending preferential import duty The decision amends the preferential import duty rates applicable to LPG stipulated
100/2008 10- Import rates applicable to liquefied in Decision 106-2007-QD-BTC of the Minister of Finance dated 20 December 2007
Gas Decision MoF
/QD-BTC Nov-08 Tariffs petroleum gas on the preferential as amended, to become the new preferential import duty rates. The List is attached
import tariff list to the decision.
Adjustment of preferential import The decision amends the preferential import tax rates of other combustion fuels
93/2007/ 16- Import
Gas/oil Decision MoF tax rates of liquefied gas and other under Heading No.2710 and liquefied gas under Heading 2711 specified in Decision
QD-BTC Nov-07 Tariffs
combustion fuels in the No. 39/2007/QD-BTC dated May 30, 2007 and Decision No. 81/2007/QD-BTC dated

65
 Issuing
Sector Name Number Date Area Content Brief description Main beneficiaries
authority
preferential import tariff October 10, 2007of the Ministry of Finance into the new preferential import tax
rates. A list of codes and their tarrifs are attached to the decision.
The report provides some assessments on the implementation of industrial
production and trade plan of the 5 years 2006 - 2010; national and international
situation, including advanatges and disadvantages;
It also provides overview abour industrial production, structural transitions and
major products. The report, however, says many products did not meet the
planned objectives such as electricity, crude oil, gas, urea nitrogenous fertilizer,
NPK fertilizer, transformers, electrical engines, vegetable oils… Specifically in 2010,
Clean coal reached 42 million tons; Crude oil 15 million tons; Gas (nature gas)
8.0billion m3, Diesel engines 320 thousands.
The output of crude oil exploited in the planned period does not meet the set
objective (18-20 million tons) . It is estimated that by 2010, the output of crude oil
Industrial will reach 15 million tons, decreasing by 1 million tons in comparison with the year
production 2009, in which, overseas exploitation accounts for 0.59 million tons; gas
Develop
and trade report on industrial production and exploitation accounts estimatedly about 8 billion m3, not meeting the set objective
Report n/a - MOIT ment
plan trade plan of the year 2011 - 2015 of 11 billion m3. For the past time, coal sector has been growing quite stably, the
plan
(including oil, estimated output by 2010 is 42 million tons, with the annual output growth speed
gas, coal..) of 4.3%/year. The income from coal production increases quite well, with the
average speed of 19.1%/year, in 3 particular years of 2006-2008, it increased by
31%/year. In 2009, as the price of coal exported greatly decreased, the turnover fell
but is estimated to recover in 2010.
The volume of crude oil exported has decreased from 16.4 million tons in 2006 to
12 million tons in 2010 with the turnover value of nearly 4.4 billion USD, lower in
comparison with set targets in the Project (around 6.3 billion USD) mainly because
4-6 million tons have to be dedicated to Dung Quat oil refining factory and export
price decreased after reaching the peak of 147 USD/galon in 2007; The volume of
coal exported, on the contrary, is higher than set objective (around 8 million tons)
and remains quite stable of around 23 million tons, thus, the turnover is increasing
quickly (averagely 14.3%).
Guiding the implementation of the
governments decree no.
63/2008/nd-cp of may 13, 2008,
on envtronmentalprotecnon
Minerals 67/2008/ 21-Jul- charge calculation method and charge rates; charge registration, declaration and
Circular MoF Fees charges for mineral exploitation GoV
General TT-BTC 08 remittance;
(stone, feldspar, gravel, sand,
earth, coal, natural mineral water,
ilmenite. metal minerals, apatite
ore. crude oil and natural gas)
Environmental protection charges
Environmental protection charges for mineral exploitation: charge rates and the
Minerals 63/2008/ 13- for mineral exploitation (stone,
Decree GoV Fees collection, remittance, management and use of environmental protection charges GoV and society
General ND-CP May-08 feldspar, gravel, sand, earth, coal,
for mineral exploitation.
natural mineral water, ilmenite.

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Sector Name Number Date Area Content Brief description Main beneficiaries
authority
metal minerals, apatite ore. crude
oil and natural gas)
The rates of fee far the exclusive right to mineral exploration are provided as
follows:
The Ist tear: VND 300,000/km2/year;
Detailing and guilding the The 2nd year: VND 400,000/km2/year;
implementation of The 3rd year: VND 550,0001km2/year;
Minerals 160/2005- 27-Dec- the law on minerals and the law The 4th year: VND 700,000/km2/year.
Decree GoV Law
General ND-CP 05 amending and supplementing a Deductions of budget revenues from mineral exploitation and processing activities
number of articles of the law on for local budgets must be reflected in annual state budget estimates and may be
minerals. used only for investment in pubiic infrastructure in the regions where minerals are
exploited and processed. 2, The management and use of budget revenues from
mineral activities in the regions where minerals are exploited and processed shall
comply with decisions of the Prime Minister.
The list of tarriff is attached, including: Oil originated from petroleum oil and oils
Guiding the implementation of
obtained from bituminous minerals, other than crude oil; preparations not
preferential import duty rates
190/2010 1-Dec- Import elsewhere specified or included, containing by weight 70% or more of petroleum oil
Petroleum Decision MoF applicable to a number of
/TT-BTC 10 Tariffs or of oils obtained from bituminous minerals, these oils being the basic
commodities under heading 2710
constituents of the preparations; oil residues; some other types of oil products are
in the preferential import tariff
also regulated.
Circular applies to traders of bottled liquefied petroleum gas (bottled LPG traders)
and traders of LPG cylinders (excluding importers of liquefied petroleum gas
guiding financial and tax regimes
118/2010 10- defined in Clause 2, Article 2 of the Government’s Decree No. 107/2009/ND-CP of
Gas Circular MoF Tax applicable to traders of bottled
/TT-BTC Aug-10 November 26, 2009).
liquefied petroleum gas
financial and tax regime are specified: For sale of LPG cylinders; Deposits for LPG
cylinders; Accounting of incomes from deposits ...
amending and supplementing a
number of articles of the
government's decree no. 48/2000/
115/2009 24-Dec- nd-cp detailing the petroleum law Some articles amended., inlcuding ones relating to Bidding for petroleum services;
Petroleum Decree GoV Bidding
/ND-CP 09 and the regulation on bidding for petroleum contracts issues….
petroleum survey, exploration and
exploitation promulgated together
with decree no. 34/2001/nd-cp
Petrol and oil under this Circular include petrol, diesel oil, kerosene and mazut oil.
This Circular guides the mechanism Prime price means the price used to set the petrol or oil retail price, which has the
to form, following constituents and is determined as (=) {C1F price plus (+) import duty plus
manage and use the Fund for (+) excise tax} multiplied by (x) foreign exchange rate plus (+) business expense
234/2009 9-Dec-
Petroleum Circular MoF Pricing petrol and oil price valorization norm plus (+) price valorization fund plus (+) pre-tax profit norm plus (+) value-
/TT-BTC 09
under the government's decree no. added tax plus (+) petrol and oil charges plus (+) other payable taxes, charges and
84/ 2009/nd-cp of october 15, payments under current law. The prime price is calculated on the average number
2009, on petrol and oil trading of days of reserve under Article 22 Decree No. 84/2009/ND-CP; C1F price means
the world petrol or oil price plus (+) insurance plus (+) freight for transportation to

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Sector Name Number Date Area Content Brief description Main beneficiaries
authority
Vietnamese port;
The average expense for retail of petrol, diesel oil and kerosene in the regions
nationwide is maximum VND 600/liter; The average expense for wholesale of
mazut oil in the regions nationwide is maximum VND 400/kg. The Ministry of
Finance shall announce the adjustment of the above maximum business expense
norms suitable to the actual business situation of principal traders in each period.
Principal traders may use the price valorization fund to valorize petrol and oil prices
as follows: When changes in price constituents cause the prime price to increase
between over seven per cent (> 7%) and twelve per cent (< 12%) from current retail
prices, principal traders may increase sale prices up to seven per cent (< 7%) plus
(+) sixty per cent (60%) of the prime price's actual increase in excess of seven per
cent (> 7%) within the increase limit between over seven per cent (> 7%) and
twelve per cent (< 12%). The remaining forty percent (40%) will be offset by the
price valorization fund;
providing for the collection of a
surcharge on the volume of oil
100/2009 3-Nov- The decree regulates conditions for collection of a surcharge, Surcharge rates and
Petroleum Decree GoV Pricing divided as profits to petroleum
/ND-CP 09 surcharge calculation method, and Surcharge exemption and reduction
contractors when the price of
crude oil increases
Petrol and oil trading, and Planning of petrol and oil development; conditions for
84/2009/ 15-Oct-
Petroleum Decree GoV Licensing conditions for petrol and oil granting trading license; authorization of licensing; production, trading and
ND-CP 09
trading distribution; others.
on reduction of selling prices of The retail prices (inclusive of value-added tax) of some types of standard diesel oil
78/2008/ 16-Sep- diesel oil and management at actual temperature in localities near ports of import (zone 1) are set uniformly
Petroleum Decision MoF Pricing
QD-BTC 09 mechanism for petrol and oil nationwide as follows: - 0.25S diesel oil;- 0.05S diesel oil at 15.450 15,500
trading VND/liter
Guiding customs procedures for
export, import, temporary import
70/2009/ 7-Apr-
Petroleum Circular MoF Customs for re-export of petrol and oil and Detailed of customs are provided; GoV
TT-BTC 09
import of materials for production
and processing of petrol and oil
guiding customs procedures for
79/2009/ 7-Apr- export, import, temporary import
Petroleum Decision MoF Customs specific procedures are regulated in the decision
TT-BTC 09 for re-export of petrol and oil and
import of materials
Guiding the implementation of tax
provisions applicable to
Currencies used for tax payment; Determination of taxable prices of crude oil or
organizations and individuals
32/2009/ 19-Feb- Ministry natural gas in case crude oil or natural gas is not sold under arm’s length trading
Petroleum Circular Tax conducting petroleum prospecting,
TT-BTC 09 of Finance contracts; Royalty declaration and payment; Objects liable to EIT; Determination of
exploration and exploitation
taxable income; Deductible expenses upon determination of taxable income
activities under the petroleum law

Petroleum Decision 03/2009/ 9-Jan- Prime Fees Regulating the adjustment of oil Petrol of all kind from 500VND/litter to 1000 VND/litter; Diezel from 300 VND/litter Enterprises trading

68
 Issuing
Sector Name Number Date Area Content Brief description Main beneficiaries
authority
QĐ-TTg 09 Minister and petrol fee collection to 500 VND/litter; petrolium and lubricant from 0 VND/kg to 300 VND/kg. in this commodity
To amend the export duty rate applicable to petroleum and oils extracted from
amending export duty rate in the bituminous minerals in crude form being Groups 2709.00.10.00 and 2709.00.20.00
94/2008/ 29-Oct- Export export tariff list applicable to from twenty per cent (20%) as stipulated in Decision 35/2008/QD-BTC of the
Petroleum Decision MoF
QD-BTC 08 tariffs petroleum and oils extracted from Minister of Finance dated 6 June 2008 to the new rate of ten per cent (10%), to
bituminous minerals in crude form apply to all export goods' customs declarations registered with the customs office
as from 8 November 2008.
Vietnamese traders (under the Commercial Law) who import or export petrol and
oil or process petrol and oil in the domestic market (referred to as principal petrol
and oil trading enterprises) may set selling prices of petrol and oil within their own
the mechanism for managing and
79/2008/ 16-Sep- distribution systems according to the market price mechanism.
Petroleum Decision MoF Pricing administering selling prices of
QD-BTC 08 Before issuing decisions on selling prices of petrol and oil, provincial petrol and oil
petrol and oil
trading enterprises shall register the selling prices with the Ministry of Finance and
the Ministry of Industry and Trade; and then organize the sale of petrol and oil at
registered prices
promulgating the regulation on
conditions and procedures for petrol and oil export; on temporary import of petrol
01/2008/ 3-Jan- petrol and oil export and the
Petroleum Decision MOIT Trading and oil for re-export; conditions and procedures for temporary import of petrol and
QD-BCT 08 regulation on temporary import of
oil for re-export
petrol and oil for re-export
The decision amends the preferential import tax rates of other combustion fuels
under Heading No.2710 and liquefied gas under Heading 2711 specified in Decision
No. 39/2007/QD-BTC dated May 30, 2007 and Decision No. 81/2007/QD-BTC dated
Adjustment of preferential import October 10, 2007of the Ministry of Finance into the new preferential import tax
93/2007/ 16- Import tax rates of liquefied gas and other rates .
Petroleum Decision MoF
QD-BTC Nov-07 Tariffs combustion fuels in the The list of codes of goods, including petroleum is attached to the decision. In which:
preferential import tariff. Petroleum oils and oils obtained from bituminous minerals, excluding crude;
preparations not elsewhere specified or included, containing by weight 70% or
more of petroleum oils or of oils obtained from bituminous minerals, these oils are
the basic constituents of the preparations; waste oils.
Amending import tax rates on incentives for liquefied gas products in the
81/2007/ 10-Oct- Import Adjustment of preferential import
Gas Decision MoF Preferential Import Tariff issued together with Decision No. 07 39/2006/QD-BTC 28
QĐ-BTC 07 Tariffs tax rates of liquefied gas
May 2006 by the Minister of Finance the import tax rates on new incentives
Promulgating import tax rates for
certain preferential goods under
39/2007/ 30- Import heading 2710 in the Preferential
Petroleum Decision MoF The list describing codes of goods and tarrifs are attached to the Decision.
QĐ-BTC May-07 Tariffs Import Tariff according to the
enclosed list, including petroleum
of all types.
preferences and incentives regulated include: Equipment, means, supplies, raw
a number of preferences and materials and fuels subject to export tax and value added tax, which are exported
116/2001 2-Aug- Prime Investm
Petroleum Decision incentives for overseas investment by enterprises for the implementation of overseas investment petroleum projects,
/QD-TTg 01 Minister ent
in the field of petroleum activities shall be exempt from export tax, and enjoy the zero (0%) value added tax rate;
Equipment and supplies used exclusively for petroleum activities, which can not be

69
 Issuing
Sector Name Number Date Area Content Brief description Main beneficiaries
authority
produced at home yet, when being temporarily imported for the processing, then
re-exported for the implementation of petroleum projects, shall be exempt from
import tax and export tax and not be subject to value added tax.
Petrol and oil charges shall be collected in lump sum upon the delivery or sale of
the imported volumes of petrol and oil (including volumes of petrol and oil
imported by entrustment), the production and processing (including volumes of
petrol and oil delivered for internal consumption, delivered for exchange for other
guiding the implementation of the
products and goods, delivered back to the goods import entrustors, sold to other
06/2001/ 17-Jan- Government’s Decree No.
Petroleum Circular MoF Fees organizations and individuals), at the rates prescribed below: a/ Assorted petrol,
TT-BTC 01 78/2000/ND-CP dated December
including car petrol, aircraft petrol, industrial petrol and petrol of other kinds: VND
26, 2000 on petrol and oil charges
500/liters (five hundred dong/liter). b/ Diesel oil: VND 300/liters (three hundred
dong/liter). c/ Kerosene, fuel oil, lubricants, grease and oil of other kinds (except
petrol and diesel oil specified at Items a and b of this Point): Charges shall not be
collected yet.
List of localities far from ports, as
568/XD- 30-Sep- Petrolime business cost is high (in short
Petroleum Decision prices A list of provinces is attached to the decision.
QĐ-TGD 09 x Region 2), petroleum prices
increased by 2% max.

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