Vietnam Coal and Mineral Industries’ (Vinacomin) proposal to raise coal prices by 20-40 percent beginning on April 1 was unexpectedly approved by the Ministry of Finance.

The latest coal price increase plan was carried out very quietly because unlike previously, the news was not caught and reported by local newspapers. In general, any attempt by Vinacomin to raise coal prices would face strong opposition from big coal consumers, who complain that the higher coal prices would make their production costs higher and weaken the competitiveness of their products.

Explaining the coal price hike, Vinacomin said that the input material prices have increased too sharply to unbearable levels for Vinacomin. The petroleum prices have increased two times by 40 percent in total, while the dollar price has increased by 9.3 percent.

Meanwhile, Vinacomin has to pay higher for bank loan interest rates and for coal exports (the export tariff has risen from 10 percent to 15 percent). The petroleum price, iron and steel to stand coal mines, the exchange rate and bank loan interest rates alone have caused production costs to increase by 3500 billion dong.

Meanwhile, the export tariff increase has made the production cost increase by another 1300 billion dong. Therefore, if Vinacomin does not get the permission to raise coal prices, it would face financial problems. Currently, the coal price at which Vinacomin sells to power generators is just equal to 60 percent of the production cost.

Representative from Vinacomin said that in principle, the domestic prices are 10 percent lower than the maximum export prices. However, in fact, the actual domestic prices applied to cement, paper and fertilizer manufacturers prior to March 31, 2011 were just equal to 60 percent of the export prices.

The domestic prices have been unreasonably lower than the export prices for a long time because in 2010 the government decided not to adjust the coal prices in an effort to curb inflation.

The 20-40 percent price increase plan for the first phase has been submitted by Vinacomin to the Ministry of Finance which has approved the plan.

According to Vinacomin, it needs 15 trillion dong worth of capital a year to invest in coal production. In order to have that sum, it needs to have a reciprocal capital of three trillion dong a year, or six trillion dong worth of profit. Meanwhile, earlier this year, the group calculated that the expected profit in 2011 would be 3500 billion dong, which means Vinacomin would not have enough reciprocal capital.

Vinacomin also needs to earn profits that are higher than bank loan interest rates. However, the ratio of profit on turnover after the coal price increase would be about nine percent (4.5 trillion dong/ 52 trillion dong), while the bank loan interest rates are 17-18 percent per annum.

When asked if the decision to raise the coal price increases is a reasonable move at this moment when the government is trying to keep prices stable and restrain inflation, an executive of Vinacomin said that raising coal prices is a must.

He said that the sharp input material price increases have forced the coal producer to raise prices to cover expenses, even though it has been trying to cut down expenses by applying technology solutions.

Besides, he also said that the coal price increase has been designed in a way that will minimally affect the inflation rate.

Hong Ngan