increase .025% with electricity hike
industry and finance ministries have proposed the Government increase
electricity rates by 8.8 per cent sooner than initially planned. On November 24,
the Government reportedly approved the plan, yet there has been no confirmation
prices will rise on December 1 instead of January 1 next year. Nguyen Tien Thoa,
deputy director of the Ministry of Finance’s Price Control Department, talks
about the hike and its effect on production costs.
did your ministry suggest raising electricity rates in December? Is it possible
to implement such a price hike on such short notice?
If the Prime Minister
agrees with the ministries’ proposal, the price hike can realistically be
implemented for these reasons: firstly, a detailed table of electricity rates
has already been prepared; secondly, there is no electricity inventory to worry
about; and thirdly, it is not that difficult or time consuming to compile
statistics on consumed electricity based on old and new prices.
The three reasons why the
Ministry of Finance recommended December 1 are:
Firstly, the CPI [Consumer
Price Index] in 2006 will likely be around 7 per cent, which is lower than
previous years so there is room for it to rise further. The hike in rates will
add another 0.25 per cent to CPI, which is acceptable and still below the
economic growth rate.
Secondly, oil prices and
other oil-related products have stabilised.
Thirdly, we want to avoid
any major economic shocks. If the electricity rate is raised in January 2007, it
would coincide with rising demand for many other goods and services, pushing
prices even higher before the Lunar New Year in February.
electricity prices be increased again in 2007?
Electricity generated by
Electricity of Viet Nam [EVN] is from two sources. The first source is from EVN’s
own power plants, which accounts for 57.46 per cent of the country’s total
The second source is from
independent power producers like Phu My, Hiep Phuoc and companies in China.
The average cost of
producing or buying electricity from the independents is VND847.5 per
Meanwhile, the current
price that consumers pay is VND783 per kWh. In essence, the State loses VND65.5
per kWh, which is equivalent to VND3.4 trillion ($212 million) a year.
When electricity prices
increases by 8.8 per cent, EVN will not only cover the loss but also make a 4
per cent profit.
If prices increase in
December, we may not have to change rates again in 2007. The next hike may be in
Starting in 2010,
electricity prices will be determined by market forces and other related input
year, the electricity industry is expected to supply more than 50 billion kWh.
At current prices, does the industry lose money?
Despite the fact that many
input costs have increased many times over since 2002, the electricity price
hasn’t changed, resulting in falling profitability over the years.
EVN indicated its return
on investment in 2002 stood at 6.04 per cent.
This number fell to 3.65
per cent in 2004 and 2.48 per cent in 2005. The company hasn’t reported the
2006 figure yet.
EVN estimates that it will
produce 57 per cent of total demand with the remaining 43 per cent bought at
much higher prices from independent power producers.
If these estimates are
correct, the company will lose VND3.4 trillion this year.
However, the figures are
people believe that before increasing price the electricity industry should
study whether it has managed its costs reasonably, and whether it has a
transparent road-map in increasing rates. What do you think about this idea?
I do not object to the
idea. As a matter of fact, we mentioned this idea a year ago. The industry also
publicized four scenarios of power price increases.
We also have a
professional organisation to study and control costs. We must believe in them
and their report.
Electricity prices have
been appraised by a Government working group comprising of many officials and
agencies. The final appraisal is by the Ministry of Finance.
the electricity prices increase by 8.8 per cent, how will other goods and
services be affected?
As I mentioned before,
when the electricity price increases by 8.8 per cent, it will have a direct
impact on the CPI, which will rise by 0.25 per cent.
Production costs should
increase by about 1 per cent. Although production costs will rise, we are
uncertain whether consumers will be hit. The selling price of final goods and
services will depend on market forces, not producers alone.
it be difficult for enterprises that use a lot of electricity during peak hours
to cope with the 8.8 per cent hike?
The amount of electricity
used during production in peak hours accounts for 4.88 per cent of the total
Electricity prices for
normal hours will not increase, while prices for electricity used for production
purposes during peak hours will increase by 4 per cent. This increase will
affect some industries including steel and cement.
Enterprises will overcome
difficulties if they re-organise their production and limit electricity use in
peak hours. — VNS