Mai Linh vs EVN - opposite ways of debt repayment

Both Mai Linh Group and the Electricity of Vietnam Group (EVN) have been highlighted as big debtors following the information publicized late last week.

The former is unable to repay some VND500 billion ($24.04 million) it had mobilized from 800 individual investors to fund its operation in the past, while the latter incurred a VND5.29 trillion ($253.9 million) loss in 2011 alone.

But they have chosen completely different ways to repay their debt, due to their company’s status.

Monopoly advantage

While Mai Linh Group, a joint stock company, has to sell their assets for debt repayment, EVN, a state-owned monopoly, chose to raise retail electricity prices for the same purpose.

Mai Linh, the second-largest taxi operator in Ho Chi Minh City after Vinasun, is poised to sell old taxis in 2013 to repay its investors, chairman Ho Huy told Tuoi Tre.

The sale of 1,000 taxis, whose values range from VND150 million to VND400 million, is expected to gain the company VND200-300 billion.

It has also bargained away 200 out of its 500 buses to get money for debt payment and investment in the low-cost taxi segment.

EVN, on the other hand, hiked electricity prices once again by 5 percent on Saturday, after a previous 5 percent increase on July 1. The average power price will thus rise to VND1,437 a kWh from VND1,369, excluding value-added tax.

EVN is expecting to rake in more than VND7 trillion from the price increase and most of the sum will be used to cover overrun expenses, said EVN deputy CEO Dinh Quang Tri.

Some VND3.5 trillion of the sum will be used for offsetting losses, as the government has ordered that EVN completely make up for the losses of the previous years in 2012 and 2013, he said.

Who is to blame?

“The losses are our fault,” Mai Linh Group’s chairman Ho Huy told Tuoi Tre.

"The main cause for the company’s financial crisis, according to its chairman, is that they have used the short-term loans from investors to invest in long-term projects."

“It takes five years to recoup investment on a taxi, and we now don’t know how to get the money for debt clearance,” he said.

The company has mobilized capital from the public at 18 to 25 percent a year, while its 60 subsidiaries countrywide, which receive investment worth thousands of billions of dong, only contribute a 5 percent dividend each year.

EVN, on the other hand, partially suffered losses due to massive investment in non-core businesses.

As of August this year, EVN posted a non-core investment of VND4.5 trillion, or 4.13 percent of its chartered capital, said state auditors. Meanwhile, the report by the Party Committee for Centrally-Run State Enterprises reveals that EVN reported VND2.1 trillion of investments in non-core sectors, or 3 percent of its chartered capital.

Meanwhile, EVN deputy general director Dinh Quang Tri said the group scaled down its non-core investments to VND1.1 trillion in the January-July period.

This July’s 5-percent power price increase has incited a consumer uproar, as many believe EVN’s poor management is the main cause for the high power prices they have to suffer.

While the fixed profit calculation is strictly managed, the ministries have failed to appropriately check EVN’s reported expenses, an expert told Tuoi Tre.

Thus, EVN feels at ease reporting high expenses, which are most of the time accepted by management authorities.

Power loss in transmission also plays a role here.

Total electricity loss in the first five months of 2012 still remained high, estimated at some VND6.5 trillion ($310.4 million) in value, according to EVN.

The electricity loss in the period was over 5.3 billion kWh, or 11 percent of the total electricity production and purchase, said the report on the country's electricity supply situation in the first five months of 2012.

Vietnam’s electricity loss ratio is at a high level compared to that of the Philippines, Singapore, Malaysia, Indonesia or Thailand, which have an electricity loss ratio of about 4-5 percent, according Tran Viet Ngai, chairman of the Vietnam Energy Association.

The losses are attributable to old transmission lines, overloading, locking connectors, distribution wires, and old substations, Ngai said.