CIRCULAR

PROVIDING FOR METHODS OF CALCULATING, PROCESSES AND PROCEDURES FOR SETTING THE COST OF ELECTRICITY SYSTEM AND MARKET OPERATIONS

Pursuant to the Government’s Decree No. 189/2007/ND-CP dated December 27, 2007 providing for functions, tasks, powers and organizational structure of the Ministry of Industry and Trade;

Pursuant to the Law on Electricity dated December 3, 2004, and the Government’s Decree No. 105/2005/ND-CP dated August 17, 2005 specifying and guiding the implementation of several articles of the Law on Electricity;

Pursuant to the Prime Minister’s Decision No. 153/2008/QD-TTg dated November 28, 2008 providing for functions, duties, powers and organizational structure of the Electricity Regulatory Authority of the Ministry of Industry and Trade;

The Ministry of Industry and Trade hereby provides for methods of calculating, processes and procedures for setting the cost of electricity system and market operations as follows:

Chapter 1.

GENERAL PROVISIONS

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1. This Circular provides regulations on methods of calculating, processes and procedures for setting the cost of electricity system and market operations, and on that cost itself.

2. This Circular shall apply to national electricity system and market operators, the Electric Power Trading Company and the Vietnam Electricity.

Article 2. Definition

For the purpose of this Circular, terms used hereunder shall be construed as follows:

1. National electricity system and market operator refers to an entity commanding, operating and regulating power generation, transmission and distribution activities in the national power system, and managing electricity market transactions.

2. Electricity system and market operating cost refers to the component cost constituting the expenditure on management and administration of the power industry and ancillary services thereof, which is set on an annual basis and paid for implementation of tasks relating to electricity system and market operations by the national electricity system and market operator within a financial year.

3. Ancillary service cost refers to the component cost constituting the expenditure on operation of electricity system and market, which is set on an annual basis and used by the national electricity system and market operator within a financial year to pay for cold-start, fast-start reserve and reliability-must-run services purchased at the agreed price and rendered under terms and conditions of an ancillary service agreement.

4. Financial statement refers to the financial report which has been audited by an independent auditing entity.

5. The effective year of power selling price refers to the year that begins on the 1^st day of March in that year and ends after the last day of February in the subsequent year.

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7. Year N-1 refers to the effective year of the power selling price immediately preceding the year N, and the year in which the cost of electricity system and market operations, and ancillary services, is set to apply to the year N.

8. Year N-2 refers to the effective year of the power selling price immediately preceding the year N-1.

Chapter 2.

METHODS OF DETERMINING TOTAL COST OF ELECTRICITY SYSTEM AND MARKET OPERATIONS

Article 3. Principles of the electricity system and market operating cost

Electricity system and market operating cost in the year N shall be comprised of total cost, to the extent that determined on the basis of reasonable expenses within the regulatory norm, paid by the electricity system and market operator for implementation of tasks relating to electricity system and market operations in the year N; and total cost of ancillary services determined on the basis of the number of ancillary services calculated and agreed upon in the contracts signed by the national electricity system and market operator with power generators according to the approved electricity system operational plan to be executed in the year N.

Article 4. Method of determining total annual cost of electricity system and market operations

Total cost accounted for in the year N   of the national electricity system and market operator comprised of the cost of capital  , the operation and maintenance cost  , the ancillary service cost  , and the difference in the electricity system and market operating cost of the year N-2 (CL_N-2), likely to be subject to any adjustment made in the year N, shall be determined according to the following formula:

= +++CL_N-2

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Total cost of capital in the year N of the national electricity system and market operator (VND);

:

Total operation and maintenance cost in the year N of the national electricity system and market operator (VND);

:

Total cost of ancillary service in the year N (VND);

CL_N-2:

The difference in the electricity system and market operating cost of the year N-2, likely to be subject to any allowable adjustment made in the year N, which shall be determined by employing the method referred to in Article 7 hereof (VND).

Article 5. Method of determining total cost of capital

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=++ LN_N

Where

:

Total cost of depreciation in the year N (VND);

:

Total cost of payment of long-term loan interest, and fees for application for borrowed funds invested in assets used for electricity system and market operations, payable in the year N (VND);

LN_N:

Permitted income earned in the year N (VND)

2. Total cost of fixed asset depreciation   in the year N shall be determined under regulations on its useful life and according to the method of fixed asset depreciation stipulated by the Circular No. 203/2009/TT-BTC of the Ministry of Finance dated October 20, 2009 providing guidance on regulatory policies on management, utilization and depreciation of fixed assets.

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3. Total cost of payment of long-term loan interest and fees for application for borrowed funds   in the year N shall be determined according to credit facility agreements.

4. Permitted income earned in the year N (LN_N) shall be determined according to the following formula:

LN_N = V_CSH,N x ROE_N

Where

V_CSH,N :

The average of equity capital estimated until the 31^st day of December in the year N-1 and equity capital estimated until the 31^st day of December in the year N (VND);

ROE_N:

The return on equity ratio of the national electricity system and market operator (%) shall be determined with the aim of ensuring that financial indicators (including Self Financing Ratio – SFR equaling 25% and Debt Service Coverage Ratio – DSCR equaling 1.5) conform to lender’s requirements.

Article 6. Method of determining total operation and maintenance cost

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­=+ ++

Where

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Total cost of raw materials in the year N (VND);

:

Total cost of salaries or wages in the year N (VND);

:

Total cost of major repairs in the year N (VND);

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Total other monetary cost in the year N (VND).

2. Method of determining total cost of raw materials

a) Total cost of raw materials   in the year N shall be determined on the basis of the cost of raw materials realized in the year N-2 as stated in an auditing report, and the increased or decreased cost of raw materials estimated in the year N-1 and N in proportion to the increased or decreased amount of tangible fixed assets, according to the following formula:

=+ (+)

Where

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Total cost of materials in the year N (VND);

:

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Total increased or decreased cost of raw materials in the year N-1 in proportion to total increased or decreased amount of tangible fixed assets in the year N-1 (VND), which is determined under Point b of this Clause;

:

Total increased or decreased cost of raw materials in the year N in proportion to total increased or decreased amount of tangible fixed assets, which is determined under Point c of this Clause;

b) Total increased or decreased cost of raw materials   in the year N-1 shall be determined on the basis of the regulatory norms of raw materials, and the increased or decreased amount of tangible fixed assets in the year N-1 according to the following formula:

=

Where

:

Total increased or decreased cost of raw materials in the year N-1 (VND);

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Total increased or decreased amount of tangible fixed assets of i category in the year N-1 (estimated) compared with that in the year N-2 (VND);

VL_i:

The regulatory norm of cost of raw materials for tangible fixed assets of i category, regulated by the Ministry of Industry and Trade (%);

i:

Category of fixed asset;

c) Total increased or decreased cost of raw materials   in the year N shall be determined on the basis of the regulatory norms of raw materials, and the increased or decreased amount of tangible fixed assets in the year N according to the following formula:

=

Where

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L_i,N:

Total increased or decreased amount of tangible fixed assets of i category in the year N-1 (estimated) (VND);

VL_i:

The regulatory norm of cost of raw materials for tangible fixed assets of i category, regulated by competent authorities (%);

i:

Category of fixed asset;

d) The cost of raw materials in a year calculated in accordance with Point a of this Clause means a sum subject to the spending authorization within the year N and shall not be subject to any allowable adjustment;

dd) The national electricity system and market operator shall be responsible for establishing the regulatory norms of cost of raw materials for each category of asset which are submitted to the Vietnam Electricity for its consideration and forwarded to the Electricity Regulatory Authority for its inspection or assessment before being submitted to the Ministry of Industry and Trade to bring it into effect.

3. Method of determining cost of salaries or wages, and other wage-related income.

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=+

Where

: Cost of wages or salaries and bonuses paid for safe operations performed by the national electricity system and market operator, which is determined under the Government’s Decree No.141/2007/ND-CP dated September 5, 2007 on the pay scheme with respect to state-owned parent companies and subsidiary companies of economic corporations, and the Circular No.19/2007/TT-BLDTBXH dated October 4, 2007 of the Ministry of Labor, War Invalids and Social Affairs guiding the implementation of the Government’s Decree No. 141/2007/ND-CP dated September 5, 2007;

: Wage-related cost accounted for by the national electricity system and market operator shall include social insurance, health insurance, trade union's expenses, and unemployment insurance as provided by prevailing laws and regulations.

4. Method of determining total cost of major repairs

Total cost of major repairs   in the year N of the national electricity system and market operator in the year N (excluding a portion of capital used for improving tangible fixed assets, which is accounting for as an increase in the historical cost thereof) shall be determined on the basis of total budget for major repair costs for items of which major repairs are right on schedule.

5. Method of determining total cost of outsourced services

a) Total cost of outsourced services  in the year N means the cost paid for goods, services or utilities supplied by external organizations or individuals upon request, including electricity, water and telephone bill payments, and newspaper, magazine or book subscriptions; payments for purchase and utilization of technical documents; maintenance fee for computer software products; fees for hired audit consultants; office or workplace rentals; asset rentals; property insurance costs; telecommunications equipment rentals for electricity system operations; frequency band rentals and other service charges paid as agreed upon in service supply agreements for electricity system and market operations taking place in the year N;

b) Total outsourced service cost   in the year N shall be determined according to the demands for outsourced services expected in the year N on the basis of actual costs recognized in the year N-2 which have been audited and costs expected to be recognized in the year N-1.

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a) Total other monetary cost   in the year N shall include business travel costs; conference and guest fees; training costs; scientific research, invention and innovation expenses; employee shift meal costs; fees for militia, flood or fire safety prevention or protection services; personal protective equipment, work dresses or uniforms, occupational safety, industrial sanitation and environment; costs of water drunk at work, benefits in kind for night shifts and hazardous work duties; costs of medical first aid or emergency services in case of occupational accidents, common ailment medicines, employee’s vocational rehabilitation; recruitment fees; tax-related costs; land rents; supplemental costs for maintenance of working capital, costs of short-term loan interest payments for electricity system and market operations, differences in exchange rates applied to long-term loans at maturity and other monetary costs in the year N;

b) Total other monetary cost   in the year N shall be determined according to the demands for other monetary costs in the year N on the basis of actual costs recognized in the year N-2 which have been audited and costs expected to be recognized in the year N-1.

Article 7. Method of determining total cost of ancillary services

Total cost of ancillary services in the year N   shall be determined on the basis of total cost expected to be paid to secure obligations agreed upon in ancillary service contracts in the year N according to the following formula:

= ++

C_FSR:

Cost of fast-start reserve in the year N, determined by total estimated value of fast-start reserve service contracts signed by the national electricity system and market operator with other service providers (VND);

C_CSR:

Cost of cold-start reserve in the year N, determined by total estimated value of cold-start reserve service contracts signed by the national electricity system and market operator with other service providers (VND);

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Cost of reliability-must-run for system security in the year N, determined by total estimated value of system security reliability-must-run service contracts signed by the national electricity system and market operator with other service providers (VND).

Article 8. Method of the difference in total cost of electricity system and market operations likely to be subject to any allowable adjustment

1. The difference in total cost of the electricity system and market operations in the year N-2 (CL_N-2) likely to be subject to any allowable adjustment made in the year N shall be determined according to the following formula:

= (++) x (1 + I_N-1)

Where

CL_N-2:

The difference in total cost of the electricity system and market operations in the year N-2 likely to be subject to any allowable adjustment made in the year N (VND);

:

The difference in the year N-2’s cost of capital of the national electricity system and market operator likely to be subject to any allowable adjustment made in the year N, which is determined according to the method referred to in Clause 2 of this Article (VND);

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The difference in the year N-2’s cost of operation and maintenance of the national electricity system and market operator likely to be subject to any allowable adjustment made in the year N, which is determined according to the method referred to in Clause 3 of this Article (VND);

:

The difference in the year N-2’s cost of ancillary services likely to be subject to any allowable adjustment made in the year N, which is determined according to the method referred to in Clause 4 of this Article (VND);

I_N-1:

The average rate of interest in arrears on 12-month term VND deposits applied to corporate customers on the 31^st day of July in the year N-1 by four (04) commercial banks (including Vietcombank, Vietinbank, BIDV and Agribank) plus 3%.

2. The method of determining the difference in total cost of capital of the national electricity system and market operator in the year N-2, likely to be subject to any allowable adjustment made in the year N, shall be determined according to the following formula:

= (-) + (-)

Where

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The cost of depreciation constituting total approved cost of electricity system and market operations in the year N-2 of the national electricity system and market operator (VND);

The actual cost of depreciation in the year N-2 of the national electricity system and market operator which is only charged for items emplaced in the schedule of depreciations constituting total cost of electricity system and market operations, approved for the year N-2 (VND);

The cost of long-term loan interest payments and other fees for application for loans, constituting total cost of electricity system and market operations, approved for the year N-2, of the national electricity system and market operator (VND);

The cost of long-term loan interest payments and other actual fees for application for borrowed funds recognized in the year N-2 of the national electricity system and market operator, which is only charged for items emplaced in the schedule of long-term loan interest payments and fees for application for borrowed funds constituting total cost of electricity system and market operations, approved for the year N-2 (VND).

3. The method of determining the difference in total operation and maintenance cost of the national electricity system and market operator in the year N-2, allowed to be adjusted in the year N  , shall be determined according to the following formula:

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Where

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The difference in the operation and maintenance cost of the national electricity system and market operator in the year N-2, allowed to be adjusted in the year N (VND);

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The cost of salaries or wages constituting total approved cost of electricity system and market operations in the year N-2 of the national electricity system and market operator (VND);

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The actual cost of salaries or wages recognized in the year N-2 of the national electricity system and market operator (VND). The realized cost of salaries or wages shall be re-computed to determine the difference in salaries or wages only when there is any change to regulatory policies on the statutory base pay level and salary-related expenses;

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The cost of major repairs constituting total approved cost of electricity system and market operations in the year N-2 of the national electricity system and market operator (VND);

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The actual cost of major repairs realized in the year N-2 of the national electricity system and market operator which is only charged for items emplaced in the schedule of major repairs constituting total cost of electricity system and market operations, approved for the year N-2 (VND);

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The cost of outsourced services constituting total approved cost of electricity system and market operations in the year N-2 of the national electricity system and market operator (VND);

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The actual cost of outsourced services recognized in the year N-2 of the national electricity system and market operator (VND);

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The other monetary cost constituting total approved cost of electricity system and market operations in the year N-2 of the national electricity system and market operator (VND);

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The actual other monetary cost recognized in the year N-2 of the national electricity system and market operator (VND). The adjustment to the other monetary cost shall only be made with respect to the difference in exchange rate recognized for long-term loans which are mature in the year N-2.

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= (- ) + (- ) + (- )

Where

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The difference in total cost of ancillary services in the year N-2, allowed to be adjusted in the year N (VND);

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The cost of fast-start reserve services in the year N constituting total cost of electricity system and market operations which has been approved in the year N-2 (VND);

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The actual cost of fast-start reserve services recognized in the year N-2, determined by aggregate actual amounts paid for these services in the year N-2 by the national electricity system and market operator to service providers (VND);

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The actual cost of cold-start reserve services recognized in the year N-2, determined by aggregate actual amounts paid for these services in the year N-2 by the national electricity system and market operator to service providers (VND);

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The cost of reliability-must-run services for the system security constituting total cost of electricity system and market operations which has been approved in the year N-2 (VND);

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The actual cost of reliability-must-run services for the system security recognized in the year N-2, determined by aggregate actual amounts paid for these services in the year N-2 by the national electricity system and market operator to service providers (VND).

Article 9. Adjustment in total cost of electricity system and market operations

1. The national electricity system and market operator shall be responsible for establishing and maintenance the system of logbooks to monitor expense items to determine the difference as an allowable adjustment to total cost of electricity system and market operations in accordance with Article 8 hereof.

2. Any adjustment in total cost of electricity system and market operations shall be made only when there is any difference between the reasonable or legitimate cost in the year N-2 (with reference to financial statements) and the cost which has been calculated as a constituent of total cost of electricity system and market operations approved for the year N-2.

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PROCESSES AND PROCEDURES FOR SETTING TOTAL COST OF ELECTRICITY SYSTEM AND MARKET OPERATIONS

Article 10. Processes and procedures for setting total cost of electricity system and market operations

1. Before the 5^th day of September in the year N-1, the national electricity system and market operator shall assume responsibilities for preparing the request dossier for assessment of the cost of electricity system and market operations in the year of price application N for submission to the Vietnam Electricity for its consideration and approval.

2. Before the 15^th day of September in the year N-1, the Vietnam Electricity shall assume responsibilities for submitting the request dossier for assessment of the cost of electricity system and market operations in the year of price application N for the Electricity Regulatory Authority’s evaluation.

3. Where that application dossier is not valid, the Vietnam Electricity shall be responsible for improving it for submission to the Electricity Regulatory Authority before the 25^th day of September in that year.

4. Before the 10^th day of October in the year N-1, the Electricity Regulatory Authority shall assume responsibilities for verifying or evaluating and grant written consent to total cost of electricity system and market operations in the year of price application N. In case of rejection, a written response in which clear reasons are provided should be sent.

Article 11. Request dossier for evaluation of total cost of electricity system and market operations

The request dossier for evaluation of total cost of electricity system and market operations in the year N shall include:

1. The statement on the request for evaluation of total cost of electricity system and market operations in the year N.

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a) Analyze, assess cost items currently realized till the 31^st day of August in the year N-1 and expected to be realized till the end of February in the year N;

b) Explain and calculate total allowed cost of capital   in the year N of the national electricity system and market operator, including:

- With respect to total cost of depreciation in the year N: the general calculation factsheet of fixed asset depreciations in the year N and the detailed calculation factsheet of underlying costs of depreciation for specific fixed assets in the year N;

- The list of work items expected to be brought into operation in the year N and the date of commencement of depreciation;

- With respect to total cost of payment of long-term loan interest, and fees for application for borrowed funds invested in valid projects in the year N: the calculation factsheet of loan interest and fees for application for loans intended to be paid in the year N;

- With respect to the equity capital estimated till the end of year N-1 and planned till the end of year N: the demonstration and the detailed calculation factsheet of actual increase or decrease in the equity capital in the year N-1 and N;

- With respect to the forecast income earned in the year N, return on equity ratio, self-financing ratio, debt service coverage ratio, where value of the equity capital of the national electricity system and market operator has not been identified yet, the average number thereof reported by the Vietnam Electricity shall be accepted.

c) Explain and calculate total allowed cost of operation and maintenance  in the year N of the national electricity system and market operator, including:

- With respect to total cost of raw materials in the year N: the demonstration and calculation factsheet of actual costs of raw materials realized in the year N-2, additional costs of raw materials incurred in the year N-1 and N in proportion to the increased or decreased amount of tangible fixed assets of different classes or divisions;

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- With respect to total cost of major repairs in the year N: the demonstration and calculation factsheet of costs of major repairs of specific equipment items of which these repairs are right on schedule in the year N, historical costs of assets subject to major repairs, and the latest major repair which has been completed;

- With respect to total outsourced service cost in the year N: the demonstration and calculation factsheet of costs of specific outsourced services actually realized in the year N-2, estimated in the year N-1 and projected in the year N.

- With respect to total other monetary cost in the year N: the demonstration and calculation factsheet of other monetary costs actually realized in the year N-1, estimated in the year N-1 and projected in the year N, including working capital and supplemental amounts used for working capital maintenance, and short-term loans for addition to any deficiency in costs of electricity system and market operations and ancillary service costs.

d) The demonstration and calculation factsheets of total costs of specific ancillary services in the year N shall include:

- Analyze, assess actual payments for ancillary services of different categories realized till the 31^st day of August and estimated till the end of year N-1;

- Explain and calculate total estimated cost payable by the national electricity system and market operator as agreed upon in the ancillary service contracts in the year N;

- The proposed list of ancillary service providers, anticipated quantity of ancillary services and estimated expenses agreed upon with ancillary service providers in the year N;

- The demonstration and calculation of total costs of ancillary services   estimated in the year N;

dd) The demonstration, enumeration and calculation of the difference in costs of electricity system and market operations likely to be subject to any allowable adjustment in the year N-2;

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g) Attached materials shall include:

- Statistical report on fixed assets which may be increased or decreased in the year N-1 and N;

- List of tangible fixed assets subject to major repairs in the year N;

- Statistical report on the number of employees and average payroll factor of the national electricity system and market operator recognized in the year N-2 and estimated in the year N-1;

- Financial statement of the year N-2, including balance sheet, income statement, cash flow statement and demonstration thereof;

- Regulatory norms of expense constituents used in dossiers permitted for application thereof.

Article 12. Procedures for paying costs of electricity system and market operations

1. Before the 15^th day of month T, the national electricity system and market operator shall submit to the Electric Power Trading Company the payment request for costs of electricity system and market operations in the month T-1, which is determined according to the following formula:

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The sum of money that the Electric Power Trading Company must pay the national electricity system and market operator in the month T-1 of the year N for costs of electricity system and market operations (VND/month).

2. Before the 20^th day of month T, the Electric Power Trading Company must pay all costs of electricity system and market operations incurred in the month T-1, referred to in Clause 1 of this Article, to the national electricity system and market operator.

Chapter 4.

IMPLEMENTARY PROVISIONS

Article 13. Conduct of implementation

1. The Electricity Regulatory Authority shall be responsible for guiding and inspecting implementation of this Circular and settling disputes that may arise.

2. The national electricity system and market operator shall be responsible for preparing the request dossier for evaluation or verification of total cost of electricity system and market operations on an annual basis for submission to the Vietnam Electricity for its consideration prior to approval thereof.

3. The Vietnam Electricity shall assume the following responsibilities:

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b) Direct the Electric Power Trading Company and the national power system operator to sign agreements on provisions of electricity system and market operation services.

c) Submit to the Electricity Regulatory Authority total cost of electricity system and market operations on an annual basis for its evaluation or verification prior to approval thereof.

Article 14. Entry into force

1. This Circular shall enter into force from June 1, 2010.

2. The Director of Electricity Regulatory Authority, the General Director of the Vietnam Electricity, the Director of the National Load Dispatch Center, and the Director of the Electric Power Trading Company, and other organizations or individuals involved, shall be responsible for implementing this Circular./.

PP. THE MINISTER
THE DEPUTY MINISTER




Do Huu Hao

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Thông tư 13/2010/TT-BCT quy định phương pháp lập, trình tự, thủ tục xây dựng chi phí vận hành hệ thống điện và thị trường điện do Bộ Công thương ban hành