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  • 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.

  • i

    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 Nam 5 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

  • ii

    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

  • iii

    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

  • iv

    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

  • 1

    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 differ

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