VietNamNet Bridge – The electricity
price for the new year will be decided in two weeks. The suggested 18 percent
increase would be the highest increase so far, and if approved, will have a
strong impact on the national economy. However, the increase still doesn’t
satisfy power investors.

c

The 18
percent increase is the lowest electricity price increase scenario proposed by
the Ministry of Industry and Trade to the Government. For the 18 percent price
increase, instead of bigger increases of 30 or 40 percent, the experts of the
ministry had to make particular calculations in order to reduce the production
costs as much as possible.

For
example, the coal price must not increase, while the profit margin of the
Electricity of Vietnam EVN would be zero percent instead of six percent as
wanted. Meanwhile, other stages of the electricity production and distribution,
such as the transmission, would only be allowed the minimum profit of one
percent. In other words, the input expenses would need to be forced down in
order to obtain the lowest possible price increase.

The
Ministry of Industry and Trade tries to keep the increase rate as low as
possible, because a too sharp increase in the price of electricity, which is
considered as the “sensitive product”, will trigger price increases of many
other goods and services, leading thus to uncontrollable inflation.

An expert
said that if necessary, EVN may even have to think of cutting 2-4 billion KWH
of electricity in order to  reduce the
expenses. If so, this would be an overly high cut, triple the volume cut in
2010, which was already a very difficult year with regular electricity cuts on
a large scale.

Lacking electricity and lacking
capital – the vicious circle

Tran Viet
Ngai, Chair of the Vietnam Energy Association is the most optimistic among the
experts. For him, the suggested price increase is too low.

“The 18
percent price increase, at first, sounds high. However, 18 percent just means
the increase of 127 dong per KWH, an inconsiderable increase,” he said. “The
Ministry of Industry and Trade has been too hesitant when increasing the price.
You see, a cup of tea now costs 2000-3000 dong”.

Ngai, who
is the former Deputy General Director of the Electricity of Vietnam, stressed
that the electricity pricing mechanism must be reasonable in order to attract
investors to the power sector, and that only reasonable electricity prices
would bring power groups the profits big enough to operate well and to re-invest.

He went on
to say that the electricity price in Vietnam is now the lowest in the
world, and it is irrational to maintain such low price levels. The problem of
lacking electricity will never be settled, if Vietnam cannot set up a
reasonable  price mechanism.

“Vietnam
predicts it will be short of three billion KHW this year. No power will be even
more dangerous than the price increases,” Ngai stressed.

When asked
how big the price increases should be, Ngai said that the UScent7 per KWH now
and UScent 8 by the end of the year would be reasonable.

Price increase will encourage
electricity saving

Dr Le Dang
Doanh, a well known economist in Vietnam, has a more moderate view.
“Ngai should keep a more sympathetic look. The 18 percent is as a very high
increase already,” Doanh said.

Ngai is
known for his shocking proposal to raise the electricity price by nearly 50
percent. EVN wants a 40 percent increase. Meanwhile, the Ministry of Finance
thinks an 11 percent increase would be reasonable. “I believe that the Ministry
of Industry and Trade has thoroughly considered the possible consequences on
the national economy before it suggested the 18 percent price increase,” he
said.

“I cannot
say if the increase rate is optimal or not. I can only say that this will
encourage people and businesses to save
electric power,” he commented.

Pham Huyen