This year’s electricity price increase will not cause much harm to the economy, according to the Ministry of Industry and Trade.

It has proposed the Government raise electricity prices by 18.03 percent. This will cause the power bill to rise about VND200 a kWh, said the ministry.

If approved, the rate will be applied from March 1 and take the average power price to VND1,271 (US$0.065) per kWh.

This is the most appropriate rate, said To Quoc Tru, director of the Vietnam Energy Consultancy Center under Vietnam Energy Association.

The rate is the lowest among the six rates the ministry submitted to the Government for consideration, including three from the ministry, 30.3, 26.3 and 18.03 percent; and another three from EVN: 40.8, 24.69 and 18.3 percent.

The ministry has also asked the Vietnam Coal and Mineral Industries Group not to hike the coal price this year, said an official from the ministry.

It has also asked EVN to mobilize all possible electricity sources, even from costly oil-fueled thermal power plants, to meet rising demand.

If EVN refuses to do so, power shortage may be over 4 billion kWh, more than three times over last year’s, he added.

Even with the electricity price jumping 30 percent in accordance with the proposal of EVN, it will have to reduce 2 billion kWh from oil-fueled thermal power plants to cut costs, an EVN source told Tuoi Tre.

With the 18.03 percent increase, the electricity sector may get no profit, even suffers losses which is expected to hit VND15 trillion (US$), but such a rate will have minimal effects on the country’s economic development and the life of people, the ministry said.

However, the power price scheme could be revised before the Prime Minister’s consideration, since all the proposed rates were calculated before the State Bank of Vietnam raised the interbank rate to VND20,693 per US dollar from VND18.932, according to Nguyen Tien Thoa, head of the Price Management Department under the Finance Ministry.

Power prices were lifted up by 6.8 percent to VND1,037 (US$0.05) per kWh in March last year after the Ministry of Finance and the Ministry of Industry and Trade proposed a 10.7 percent increase. The 2009’s price increase rate was 8.92 percent.

Radical consideration needed

Experts and businesses said the government should consider this year’s power bill hike carefully so that it won’t force businesses to scale down production.

Economic expert Pham Chi Lan said the 18.03 percent increase would put a big pressure on the life of people given that the country’s average income per capita remains low (US$1,200 in 2010).

The electricity bill rise of 18 percent will cause a domino effect on prices of other commodities and services, Nguyen Ton Quyen, deputy chairman of Vietnam Timber and Forest Products Association, told Tuoi Tre.

Such a price increase may even cause worse-than-expected result, since businesses cannot raise the prices of their products this year, Nguyen Tue Anh, head of the Research Department of Business Environment and Competiveness under the Central Institute for Economic Management, told Tuoi Tre.

So, they may not pay their debt to the banks and thus can lay off more workers and increase the rate of bad debts in the banking system, she added.

There is still room for cost cutting in the EVN’s power generation cost of VND130 trillion in 2010, and if EVN said they are suffering hefty losses, they must be audited, she said.

EVN has not made it clear which stage of production or transmission is responsible for the losses.

While they cut the supply for the countryside, they sell it at a higher price to city customers.

Even when they have to mobilize high-cost fuel-powered electricity, they can also sell it at a profitable price, she said.

EVN’s statement that the rising power bill will encourage its customers to be more energy-efficient is unreasonable, since 97 percent of Vietnamese firms are small and medium enterprises which cannot immediately equip new production line and adopt new power price policies.

The economy will pay VND19 trillion more if the power price scheme is approved by the government.

Of these, industry sector will bear VND10 trillion, pushing costs up by 0.02-9.03 percent.

The people will have to pay VND5,000-140,000 more for their monthly bills according to their power consumption rate.

Source: VIR