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18 percent increase of electricity price doesn’t satisfy EVN   2011-02-17 - Viet Nam Net

The electricity price for the new year will be decided in two weeks. The suggested 18 percent increase would be the highest increase so far, and if approved, will have a strong impact on the national economy. However, the increase still doesn’t satisfy power investors.


The 18 percent increase is the lowest electricity price increase scenario proposed by the Ministry of Industry and Trade to the Government. For the 18 percent price increase, instead of bigger increases of 30 or 40 percent, the experts of the ministry had to make particular calculations in order to reduce the production costs as much as possible.


For example, the coal price must not increase, while the profit margin of the Electricity of Vietnam EVN would be zero percent instead of six percent as wanted. Meanwhile, other stages of the electricity production and distribution, such as the transmission, would only be allowed the minimum profit of one percent. In other words, the input expenses would need to be forced down in order to obtain the lowest possible price increase.


The Ministry of Industry and Trade tries to keep the increase rate as low as possible, because a too sharp increase in the price of electricity, which is considered as the “sensitive product”, will trigger price increases of many other goods and services, leading thus to uncontrollable inflation.


An expert said that if necessary, EVN may even have to think of cutting 2-4 billion KWH of electricity in order to  reduce the expenses. If so, this would be an overly high cut, triple the volume cut in 2010, which was already a very difficult year with regular electricity cuts on a large scale.


Lacking electricity and lacking capital – the vicious circle


Tran Viet Ngai, Chair of the Vietnam Energy Association is the most optimistic among the experts. For him, the suggested price increase is too low.


“The 18 percent price increase, at first, sounds high. However, 18 percent just means the increase of 127 dong per KWH, an inconsiderable increase,” he said. “The Ministry of Industry and Trade has been too hesitant when increasing the price. You see, a cup of tea now costs 2000-3000 dong”.


Ngai, who is the former Deputy General Director of the Electricity of Vietnam, stressed that the electricity pricing mechanism must be reasonable in order to attract investors to the power sector, and that only reasonable electricity prices would bring power groups the profits big enough to operate well and to re-invest.


He went on to say that the electricity price in Vietnam is now the lowest in the world, and it is irrational to maintain such low price levels. The problem of lacking electricity will never be settled, if Vietnam cannot set up a reasonable  price mechanism.


“Vietnam predicts it will be short of three billion KHW this year. No power will be even more dangerous than the price increases,” Ngai stressed.


When asked how big the price increases should be, Ngai said that the UScent7 per KWH now and UScent 8 by the end of the year would be reasonable.


Price increase will encourage electricity saving


Dr Le Dang Doanh, a well known economist in Vietnam, has a more moderate view. “Ngai should keep a more sympathetic look. The 18 percent is as a very high increase already,” Doanh said.


Ngai is known for his shocking proposal to raise the electricity price by nearly 50 percent. EVN wants a 40 percent increase. Meanwhile, the Ministry of Finance thinks an 11 percent increase would be reasonable. “I believe that the Ministry of Industry and Trade has thoroughly considered the possible consequences on the national economy before it suggested the 18 percent price increase,” he said.


“I cannot say if the increase rate is optimal or not. I can only say that this will encourage people and businesses to save  electric power,” he commented.

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