VietNamNet Bridge – Steel and cement producers are happy with billions of dollars worth of turnover from exports in 2010. Meanwhile, electricity and coal producers, who provided energy to serve the steel and cement production, are forced to suck up their losses.
Steel producers had a prosperous year 2010 when they made a record turnover from exports. About one billion dollars were earned from steel and steel-made exports. Meanwhile, cement producers exported 700,000 tons of clinker and cement in the same year.
However, electricity and coal producers are not happy with the high achievements of the steel and cement industries.
One beats the bush and another catches the bird
“Exporting steel and cement means exporting cheap energy, which should be seen as a big danger,” said Tran Xuan Hoa, General Director of the Vietnam Coal and Mineral Industries Group (Vinacomin) at a meeting with the press earlier last week.
Hoa said that if selling one ton of coal to domestic cement plants, Vinacomin would get 1.5 million dong. However, if exporting the same ton of coal, VInacomin would get three million dong.
For the past few years, Vinacomin sold coal to cement producers at prices which were lower than the production costs and much lower than the export prices.
“A ton of coal allows to make 400,000 tons of metal, but they export all the products to South Korea. Using cheap electricity to make steel to export to South Korea is just like subsidizing rich countries which have a GDP much higher than Vietnam’s,” Hoa continued.
A manager of the Electricity of Vietnam EVN told Vietnam Economic Forum that steel and cement industries alone consume a large volume of electricity, up to 10 billion KWH, or 12.4 percent of the total electricity output.
Vietnam is seriously lacking electricity and EVN is obligated to provide cement and steel producers a the volume of electricity that exceeds the one-year designed output of Hoa Binh hydropower plant (8.6 billion KWH) and is equal to the output of Son La plant.
In 2010, the average price of electricity applied to cement and steel producers was 909 dong per KWH. This means that EVN incurred a loss of hundreds of billions of dong because it sold electricity at prices lower than production costs.
When cement and steel producers increase their exports, the volume of electricity and coal they need to make products also increases. The demand for electricity by the two industries increased by 27.5 percent over 2009. The steel production industry consumed 4.67 billion KWH (5.52 percent) and cement production industry 5.52 billion kwh (6.5 percent).
The vicious circle of the current pricing mechanism
According to Hoa, it is necessary to change the current pricing mechanism.
Under the electricity pricing scheme in 2010, the electricity price for the production sector was 898 dong per KWh in normal hours, and 496 dong per KWH in low-peak hours. As such, the one billion dollars that the steel industry earns from exports is just enough to build a 300MW power plant.
“Why is the electricity price so low? The prices have been set by the Ministry of Industry and Trade,” said the manager of EVN.
This is a vicious cycle; the more steel and cement products are exported, the bigger the losses the electricity and coal industries have to incur. Vietnamese people are forced to endure regular electricity cuts in order to pave the way for the development of the cement and steel industries.
The current electricity and coal pricing schemes are now “lending a hand” to develop the “dirty industries” whose production output has far exceeded the current demand.
Is the one billion dollars worth of steel exports high enough to compensate the losses incurred by thousands of other enterprises and people that have to live together with regular electricity cuts?