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Electricity rate hike worries businesses

Update: July, 04/2012 - 10:33

HA NOI — The Ministry of Industry and Trade alongside Electricity of Viet Nam (EVN) has said a 5 per cent rise in electricity prices would not greatly impact production, business activities or living standards.

However, both experts and enterprises have expressed concern about the price increase.

Electricity is currently sold at an average price of VND1,369 (6 US cents) per kWh, up VND65 per kWh over the previous level, pursuant to a ministerial circular issued last Friday.

EVN estimated households using 100-400kWh per month on average would have to pay additional costs of VND4,200-38,950 (US$0.20-1.87).

Senior economist Le Dang Doanh said the move might be unreasonable as it was likely to cause struggling enterprises even more difficulties, generate a domino effect on the prices of many other goods and intensify inflationary pressure which had eased over the last few months.

According to Viet Nam Steel Association Chairman Pham Chi Cuong, electricity prices make up about 6-7 per cent of total steel production costs. It takes 600kWh of electricity to produce a tonne of steel, so the 5-per-cent rise would lift total costs by around VND39,000 ($1.88) per tonne.

A maker producing 40,000 tonnes of steel per month on average would have to pay VND1.56 billion ($75,000) more every month, he calculated.

This would heap up difficulties for firms, which were struggling with falling purchasing power and increasing inventories.

The Viet Nam Fertiliser Association said the electricity price hike would directly push up fertiliser production costs by 1-1.5 per cent, not including possible material price increases.

Viet Nam Cement Association chairman Nguyen Van Thien said the move, together with a variety of unfavourable conditions related to coal and oil prices, interest rates and loan access, was causing utmost difficulties to the cement industry.

"While inventories have amounted to 6 million tonnes, the electricity price hike has proved a great shock to cement enterprises," he told Lao dong (Labour) newspaper, noting many cement producers had suffered losses and cut production this year.

Garment company Kyung Viet's General Director Nguyen Quoc Lap told the same newspaper his firm would now have to pay an electricity charge of VND200 million ($9,615) per month in stead of the previous months' average of VND160 million ($7,692).

"In order to maintain operations, we will have to enhance labour productivity and minimise wasting electricity," he said, noting that electricity bills accounted for up to 25 per cent of the company's total costs.

Nguyen Van Son, from waste treating company Moi Truong Xanh (Green Environment), said besides affecting business activities, the price increase would directly affect labourers.

"The move will significantly affect people's lives; households will not only have to pay greater monthly electricity bills, but also bare higher prices when consuming goods and services as their pockets become increasingly empty," economist Nguyen Minh Phong said.

Economic expert Nguyen Quang A agreed, saying the price adjustment was likely to affect the nation's economic growth. "EVN has continuously reported losses, but I think there are many ways to cut down on this such as enhancing management in stead of raising prices," he was reported to have said.

According to Government direction, the country will establish a competitive wholesale electricity market over the next 10 years. Some experts said this period was too long and the roadmap should be sped up for the sake of the market.

In the meantime, the electricity industry should publicise more business data to show the society how it had saved costs, local press commented.

Economic expert A said the price increase was good, to some extent, as it would force enterprises to strive to improve technology to save power. — VNS

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