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In brief

The Ministry of Industry and Trade of Vietnam (MOIT) recently released the draft of a new Decision of the Prime Minister (“Draft Decision”)1 replacing current Decision No. 28/2014/QD-TTg dated 7 April 2014 (“Decision 28”) on electricity retail tariff structures.

The Draft Decision tries to reflect practical power consumption by power consumers to address certain practical issues on the retail tariff structure. From a power developer’s perspective, however, the tariff framework for average electricity retail prices remain unchanged and the roadmap to retail electricity tariffs toward market-based pricing remain to be developed.

The proposed structures and options for determining electricity retail price in the Draft Decision are still in draft form. If you would like to discuss the details of the Draft Decision and its impacts to a specific business, please do not hesitate to contact us.


In depth

The electricity retail tariff structure is the list of ratios (%) (with ± 2% adjustments) of the price rate to be applied, to be multiplied with the nationally determined average retail tariff (“ART“)  to calculate the specific retail price for each group of electricity consumers.2

The Draft Decision proposes new structures and options for determining electricity retail prices for household/residential consumers.

Recategorizing groups of non-residential/household consumers

Decision 28 currently classifies non-household/residential consumers into three categories: manufacturing sector, administrative sector and commercial/business sector. The Draft Decision proposes two new optional plans for re-categorizing non-household/residential consumers, as follows:

Plan A: Still retaining the three categories, but the manufacturing sector will also include tourist accommodation establishments and logistics services providers

Plan B: Combining the three categories into one group

Retail electricity prices for non-household/residential groups of consumers in both Plan A and Plan B are also classified by voltage levels (extra-high and high voltage from 35 kV or larger, medium voltage from over 01 kV to 35 kV, low voltage up to 01kV).

Revised retail tariff mechanism for household/residential consumers

Decision 28 currently provides that the electricity retail tariff structure for household/residential consumers include six varying rates of prices corresponding to the levels of power consumption volume. However, under the Draft Decision, besides proposing a revised retail tariff structure with only five varying price rates, the MOIT also proposes a “single-rate price” mechanism for certain consumers.

Specifically, the Draft Decision proposes two optional plans for the proposed revised electricity retail tariff structure for household/residential consumers, as below:

Plan A: Replacing the current six-rate pricing structure with a revised five-rate pricing structure

Current structure under Decision 28 Proposed revised structure under Draft Decision
Rates Applicable ratios Rates Applicable ratios
Rate 1: For kWh from 0 – 50 92% Rate 1: For kWh from 0 – 100 90%
Rate 2: For kWh from 51 – 100 95% Rate 2: For kWh from 101 – 200 108%
Rate 3: For kWh from 101 – 200 110% Rate 3: For kWh from 201 – 400 141%
Rate 4: For kWh from 201 – 300 138% Rate 4: For kWh from 401 – 700 160%
Rate 5: For kWh from 301 – 400 154% Rate 5: For kWh from 701 kWh or higher 168%
Rate 6: For kWh from 401 kWh or higher 159%

 

Plan B: Replacing the current six-rate pricing structure with a revised five-rate pricing structure and a new “single-rate price” option

  • Sub-plan B1
Current structure under Decision 28 Proposed revised structure under Draft Decision
Rates Applicable ratios Rates Applicable ratios
Option 1: five-rate pricing structure
Rate 1: For kWh from 0 – 50 92% Rate 1: For kWh from 0 – 100 90%
Rate 2: For kWh from 51 – 100 95% Rate 2: For kWh from 101 – 200 108%
Rate 3: For kWh from 101 – 200 110% Rate 3: For kWh from 201 – 400 141%
Rate 4: For kWh from 201 – 300 138% Rate 4: For kWh from 401 – 700 160%
Rate 5: For kWh from 301 – 400 154% Rate 5: For kWh from 701 or higher 275%
Rate 6: For kWh from 401 or higher 159%
Option 2: single-rate pricing structure 145%

 

  • Sub-plan B2
Current structure under Decision 28 Proposed revised structure under Draft Decision
Rates Applicable ratios Rates Applicable ratios
Option 1: five-rate pricing structure
Rate 1: For kWh from 0 – 50 92% Rate 1: For kWh from 0 – 100 90%
Rate 2: For kWh from 51 – 100 95% Rate 2: For kWh from 101 – 200 108%
Rate 3: For kWh from 101 – 200 110% Rate 3: For kWh from 201 – 400 141%
Rate 4: For kWh from 201 – 300 138% Rate 4: For kWh from 401 – 700 160%
Rate 5: For kWh from 301 – 400 154% Rate 5: For kWh from 701  or higher 185%
Rate 6: For kWh from 401 or higher 159%
Option 2: single-rate pricing structure 155%

 

As described above, the newly proposed structure of Plan A has:

  • combined the existing rate 1 and rate 2 into the new rate 1 (for kWh from 0 to 100), and the new rate 1 price will remain to be equal to the current rate 1
  • kept the same price for households with common electricity usage for kWh, from 101 to 200
  • combined the rate for kWh from 201 to 300 with the rate for kWh, from 301 to 400 into a new rate
  • split the rate for kWh 401 onwards into two new rates for kWh, from 401 to 700 and for kWh from 700 onwards.

Meanwhile, under Plan B, consumers have the option to choose to apply the five-rate pricing structure or the single-rate pricing mechanism. As described in the two sub-plans of Plan B:

  • the ratios for rates 1 to 4 (i.e., for kWh from 0 to 700) mentioned in Plan A above remain unchanged so as not to affect households who are low- or middle-income consumers
  • there are differences in the ratio for rate 5 (for kWh 700 onwards), corresponding with the changes in the ratio for the single-rate pricing proposed in the two sub-plans.

The single-rate pricing mechanism in the new structures in the Draft Decision are proposed to be a proactive approach of the MOIT to create more options for the consumers to choose the best electricity tariff mechanism.


1 A copy of the Draft Decision in Vietnamese can be obtained on the website of the MOIT at https://www.moit.gov.vn/web/guest/tin-chi-tiet/-/chi-tiet/lay-y-kien-ve-du-thao-quyet-%C4%91inh-quy-%C4%91inh-ve-co-cau-bieu-gia-ban-le-%C4%91ien-20199-15.html  (last accessed on 25 October 2020).
2 The current ART is VND 1,864,44 /kWh (exclusive of VAT) under Decision No. 648/QD-BCT dated 20 March 2019 of the MOIT.

Author

Frederick Burke is a member of Baker McKenzie’s Global Policy Committee, comprised of the Firm’s Managing Partners globally, responsible for driving the overall strategy of the Firm. He is also the Managing Partner of our Baker McKenzie offices in Vietnam, more particularly in Hanoi and Ho Chi Minh City. He has more than 30 years’ experience practicing in the areas of corporate law, real estate, international trade and is highly regarded for his work on foreign investment projects in Vietnam and China for key players in property development, trade, IT/C, and project finance, among other areas. Mr. Burke is the go-to advisor for big deals in Vietnam’s flourishing industries including: renewable energy, agribusiness, airlines, hotels, resorts and tourism and large scale infrastructure projects. He is currently the representative of the American Chamber of Commerce in Vietnam to the Prime Minister’s Advisory Council on Administrative Reform in Vietnam and he has been recognized by the Ministry of Justice of Vietnam for his “Outstanding contributions in the field of international legal cooperation”. Mr. Burke is consistently ranked as a Leading Lawyer in Corporate / M&A by leading legal publications in Vietnam (Legal 500 AP 2007-2018; Chambers and Partners AP 2012-2018; IFLR1000 2010-2018).

Author

Thanh Hai Nguyen is an Associate in Baker McKenzie's Hanoi office.