VietNamNet Bridge – While businesses feel worried that they may fail to fulfill the yearly business plan in the big economic difficulties, and people fear that they will have to fasten their belt when celebrating Tet, they have heard another shocking news: the electricity price increases from December 20.
Electricity prices rise by 5% from today
The Electricity of Vietnam (EVN) unexpectedly announced that the electricity price increases by 5 percent as of December 20. The information has surprised everyone, including economists. No one thought before that the electricity price would be raised further in 2011, because ministries and branches all affirmed that any moves to adjust the electricity prices need to be taken in a cautious way in order to avoid shocks to the national economy.
EVN said that it has got the approval from the Ministry of Industry and Trade to raise the electricity price to by 62 dong per kwh to 1304 dong per kwh on average.
EVN has been insisting on raising the electricity prices to get more money to offset the big losses and invest in power generation projects. In 2010 alone, EVN incurred the loss of 8400 billion dong, which has raised the accumulative loss to 35 trillion dong.
EVN has warned that if Vietnam continues keeping the low electricity prices, it will not be able to attract investors into the power sector, because the profits are not attractive enough. If so, Vietnam will seriously lack electricity, while the demand keeps rising.
Nguyen Tien Thoa, Head of the Price Control Agency, an arm of the Ministry of Finance, said that the five percent increase in the electricity price would not have big direct impacts on the consumer price index CPI, because the electricity price just accounts for 3 percent of CPI. However, he said it is still necessary to have thorough consideration over the possible indirect impacts on the production.
Meanwhile, Pham Chi Lan, a well known economist, said that the electricity price hike, even though by one percent, would influence the efforts to curb inflation. The General Statistics Office GSO has announced the inflation rate of 18 percent for the whole year 2011.
The information about the electricity price increase has made manufacturing businesses worried.
Pham Chi Cuong, Chair of the Vietnam Steel Association VSA said that the five percent electricity price increase would not have big direct impacts on steel manufacturers, who have been using modern technologies which allows to cut down the energy consumption. Currently, the electricity price just accounts for 7 percent of the production cost in making ingot steel, and 1 percent in making other kinds of steel. However, what worries steel manufacturers most is that suppliers would reason the electricity price increases to raise the input material prices. If so, the production costs would be increasing sharply.
The Vietnam Fertilizer Association has said that the latest electricity price increase would lead to the 1-5 percent increases in the fertilizer production cost. However, the impacts would be bigger, if suppliers raise input material prices.
Cement producers have confirmed that the five percent power increase would lead to the 1.5-2 percent production cost increase. Prior to that, the 15 percent electricity price increase had made the production cost increase by 10 percent already.
According to the Ministry of Industry and Trade and EVN, since EVN only raises the electricity price by five percent this time, EVN does not need to seek the approval from the Prime Minister. EVN has also emphasized that it does not raise the prices applied to poor households.
Meanwhile, Lan said that the government should not give the right to self-determination to EVN in defining the price of electricity, a very “sensitive” product. The latest five percent increase may be followed by other increases in the time to come.
Regarding the electricity price applied to poor households, one cannot say that the price increases will not affect them. In fact, they will bear indirect influences, when the goods prices increase because of the higher power prices.