by Le Quynh Anh
Last week's sudden announcement by the Stated-owned Electricity of Viet Nam Group (EVN) that it was increasing the price of electricity by five per cent caught everyone by surprise. The new rates, the second increase this year, came into effect on December 22 just one day after being announced.
The move soon sparked a public outcry, with people arguing that EVN couldn't pick a worse time to boost the price. As the lunar New Year is around the corner, EVN seems to have destroyed the festive mood before Tet has even arrived!
Electricity is such a socially and politically sensitive commodity that any decision to increase its price should be made with caution. However, this time it appears that EVN's sole concern is to reduce its losses and they have overlooked many other important factors.
The immediate impact of the electricity price rise will be a push in the consumer price index. It will trigger an increase in the price of many other commodities at a time when the shopping demand is reaching its peak as our biggest holiday draws near. The rising cost of everyday essentials and Tet-related goods is the last thing consumers want to hear as many of them will have to tighten their holiday budgets. Many enterprises have cut Tet bonuses and salaries for their employees as the economic woes bites into their revenue. As if they have not suffered enough!
Meanwhile, as electricity is fundamental in keeping the economy running, a price hike will drive up production costs. This is an extremely discouraging news for the manufacturing industry, which is still struggling with shrinking demands and high stock-piles.
Viet Nam Cement Association chairman, Nguyen Van Thien, told the Vietnam Economic Times that this move is adding more pressure to the already heavily burdened industry. His members couldn't raise the cement price commensurate with the increase of production costs because sales are already low at the current price.
"Our industry is dying. If EVN continues to be the sole electricity provider, we will not have any say in its pricing policy and have no choice but to put up with the consequences," he complained.
Thien's statement speaks for many other manufacturers whose operations rely on electricity. It is too early to tell if this could be the final straw leading to the collapse of many industries, but one thing we know for sure is that this price adjustment of one of the most vital commodities is apparently inconsistent with the Government's macroeconomic regulation policies.
Prime Minister Nguyen Tan Dung has reiterated that the top priorities are to curb inflation and boost production to save the ailing economy. Triggering a price hike and causing further difficulties for manufacturers will achieve the complete opposite.
So what is the other side of the story?
Well, as explained by EVN deputy director Dinh Quang Tri, the price boost will bring in an additional profit VND7 trillion (US$350 million). This surplus, after deducting the expenses, will leave EVN with VND3 trillion ($150 million) to offset the losses accumulated from two previous operating years.
Meanwhile, EVN is expected to earn a profit of VND4 trillion this year ($200 million).
It does not make sense at all. Why do we consumers have to pay for the losses of a company without knowing exactly what our role was behind these losses? EVN has not been able to come up with a compelling account that explains what the causes for their past losses were. What if it had been mainly for the inefficient management of the company? We demand a more transparent answer.
Many experts have complained that as the sole provider of electricity in the country, EVN has a great deal of latitude in its pricing policy and even in the way its report revenues. Things are hardly likely to change in the absence of a competitive energy market.
Until such a market exists (and who knows when that might be?), people whose lives are reliant on electricity (and whose isn't?) will just have to grit their teeth a little bit harder every time EVN announces it has no choice but to increase the price. — VNS