On 30 December 2023, the Ministry of Industry and Trade (the “MOIT”) issued the draft Circular on the method to determine the electricity generation price and Power Purchase Agreements (the “PPAs”) to replace Circular No. 57/2020/TT-BCT dated 31 December 2020 (the “Draft Circular”). Overall, the Draft Circular regulates the methods for determining the electricity price and PPAs alongside the procedures for the inspection of PPAs.
In further details, the Draft Circular provides some of the notable provisions as follows:
1. To determine the electricity generation price, the reasonable costs of the investor and an internal rate of return not exceeding 12% must be considered. The electricity price encompasses many elements, including the particular connection bidding price and the PPA price, which are determined and agreed upon using the procedures outlined in the Draft Circular. Also, according to the Draft Circular, fees, and payments such as value-added tax, water resource tax, and environmental service fees are not included in the price of energy (except from those that are already included in the electricity pricing plan).
2. During the negotiation process for electricity price for the signing of the PPA, the parties are allowed to agree to a temporary price to use until the parties can mutually decide on a price to submit to the MOIT for its inspection, provided that the temporary price is not higher than the price bracket regulated by the MOIT.
3. To inspect PPAs, it is regulated that the parties entering into a PPA must submit the finalized PPA alongside with relevant application documents to the Electricity Regulatory Authority of Vietnam (the “ERAV”) for the ERAV to check and provide relevant opinions related to the PPA. Within 30 days from the date the ERAV opines on the PPA, the parties are responsible to duly execute the PPA.
4. The electricity generation price under the current PPA will be applied to power plants for the next years until the end of their economic life, provided that the PPA has expired but the plant has not yet reached the end of its economic life. The economic life of each type of power plant is clearly detailed in the Draft Circular.
5. The fixed price of power plants that have reached the end of their economic life is determined based on the principle of making sure the plant recovers costs associated with producing electricity and conducting business. Additionally, the time to calculate the price of electricity generation is determined by taking into account the major equipment repair cycle and a reasonable profit margin agreement. Apply the written consent from the governmental functional units if there is a document from those units authorizing the price calculation time.
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Please do not hesitate to contact Dr. Oliver Massmann at omassmann@duanemorris.com if you have any questions. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.