Untimely price hike

At a glance, the decision by Vietnam Electricity Group (EVN) to hike power tariffs by 5%, effective this week, does not seem to hit end-users hard. Neither does it likely stir up the market since the EVN move, endorsed by the Ministry of Industry and Trade, has been timed to coincide with the falling consumer price index (CPI) for June. The price hike also looks lawful as any price adjustment within 5% is within the jurisdiction of the State utility as approved by the Prime Minister.

In a press briefing last week, the Ministry of Industry and Trade explained that the price hike is necessary to cover higher input costs like higher coal and gas prices as well as the rise of the U.S. dollar versus Vietnam dong. Deputy Minister of Finance Nguyen Thi Minh, meanwhile, softened the impact on the economy, saying that the higher power tariffs will cause the input cost to increase a mere 0.5% for those enterprises heavily reliant on electricity. In an encounter with reporters early this week, Chairman of the Government Office Vu Duc Dam clarified the 5% upward price revision by EVN is permissible, except that EVN has not made transparent the basis for the price change.
But, against the backdrop of economic stagnation, the price hike is unacceptable, let alone the basis for such a price change, says local media.
Albeit a slight change, enterprises voice the biggest protest.
“That price hikes could be a wrongful policy… (It is) impossible to revise up the power prices at a time when the business circle for the most parts is facing huge difficulties like now,” the news site Vietnamnet quotes Do Duy Thai, CEO of Viet Steel Co. Ltd., as saying. Seconding the point, Chairman of the Vietnam Cement Association Nguyen Van Thien says the price rises “have opened up a gloomy horizon for enterprises in the industry” as industry players have incurred losses since the beginning of this year.
Several business leaders say on Vietnamnet that they would have to shoulder bigger costs at a time of economic uncertainty. Board chairman of Saigon Paper Cao Tien Vi says his company will have to pay an additional VND250 million a month on top of the current power expense of VND5 billion, while a garment maker in HCMC’s Cu Chi District laments he will have to pay VND500 million more each month. The news website likens the power price hikes to a knock-out punch to the struggling business community.
In Tuoi Tre, Chairman of the Vietnam Steel Association Pham Chi Cuong also uses the terms of a hard boxing punch to refer to the price hike, saying “I cannot understand why this time is chosen to raise the power tariffs.” Meanwhile, board chairman of Rang Dong Plastics bemoans “many more enterprises will soon pass away.”
Experts have also blasted the move by EVN.
Pham Chi Lan says on Vietnamnet that with the new power prices, other input costs will be higher, so enterprises will find it hard to survive tough times. Ngo Tri Long, a pricing expert formerly serving as vice head of the Institute for Market and Pricing, says in Tuoi Tre that production is still mired in stagnation, and the falling CPI is due to rising inventories rather than higher productivity, so “this is not the right time to raise the power tariffs.”
Local media also points out that EVN has “fished in troubled waters” when raising the power prices, passing on difficulties to others for its own gains. The new power prices, as calculated by the Ministry of Industry and Trade, will swell the power company’s revenue by over VND3.7 trillion, or some US$180 million, in the rest of this year alone, and the sum will be used to partly cover losses EVN incurred in previous years, according to Tien Phong. The paper stresses that EVN does not have any solid ground for the price hikes, and the Ministry of Industry and Trade’s reasons for the move are also baseless.
The exchange rate has been stable this year, while the prices of coal and gas so far this year have not risen, and much of the electricity consumed this year is from hydropower plants whose costs are low, according to Tien Phong. “In May, hydropower accounted for over 46% of the total, while energy from coal-fired plants made up only 16%, and that from gas-fueled plants was 34%,” asserts the paper. It also unveils huge profits from the power sector in the first quarter, including VND21 billion at Thac Ba Hydropower Plant, and VND168 billion at Pha Lai thermo-power plant, not to mention numerous other hydropower plants whose depreciation terms have expired like Thac Mo, Hoa Binh, Tri An and Yaly.
Tran Viet Ngai, chairman of the Vietnam Energy Association, also criticizes EVN, saying the power purchased by the group averages out at only VND700 a kWh, but the selling price is twice as much.
“If the power price is market-driven, there must be increases and decreases. In times of redundant power like now, the power prices should be revised down,” Ngai is quoted by Vietnamnet.
He also clarifies that input costs for the electricity sector has been falling since the year’s beginning, especially the oil and gas prices.
Dinh Phong, a member of the HCMC Fatherland Front Committee, says in a committee meeting that energy losses cannot be passed onto the people by increasing the power prices, referring to the loss ratio of nearly 10% in the sector as one of the key reasons behind inefficient EVN business, according to Phap Luat.
The power price hikes – seen as inevitable to ensure that the selling price covers all the production costs – does more harm than good when it is untimely decided this time, says Tuoi Tre. It is like an ambush against the people, says Dan Tri.

The Saigon Times Daily