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Dec 16, 2017 / 08:20

Power price hike puts more pressure on inflation next year

The recent hike of electricity retail price will add more pressures to inflation next year as it can affect many other industries and sectors.

The average electricity retail price has officially increased from VND1,622 (7.1 cent) to VND1,720 (7.6 US cent) per kWh since early this month.
According to a calculation of the General Statistics Office, the power price hike will drive the CPI to rise 0.08 percentage points and 0.1 percentage points in 2017 and 2018, respectively.
However, economist warned that despite a minor adjustment, the electricity price rise will affect some certain economic sectors. They urged to enhance control to avoid “domino” effects which can put pressure on local consumers and enterprises.
The garment industry will be affected by the electricity price rise.
The garment industry will be affected by the electricity price rise.
The electricity price hike, which is the first in the past nearly three years, has also stirred a lively debate among locals.
In response to media’s inquiry over the rise, Industry and Trade Deputy Minister Do Thang Hai said it had been carefully calculated by the Ministry of Industry and Trade, the Electricity of Vietnam (EVN) as well as other government agencies.
The possible impacts ranging from macro-economics to micro-economics like those on production, business input of enterprises, as well as impacts on the prices of other essential commodities as cement, steel have been also taken into account.
“We think that over the past time, since March 2015 (when the previous electricity price hike took place), the price of electricity had experience no adjustments, while input costs for electricity production have risen rapidly, especially coal,” Hai said.
The ministry said the price adjustment was calculated based on EVN’s power production costs in 2016. The results were independently audited by Deloitte Vietnam Company.
A report by the ministry showed that last year, the power output was 159.8 billion kWh while electricity loss rate was 7.57 percent, which was 0.37 percentage points lower than that of 2015.
Total electricity production cost was VND266.1 trillion ($11.72 billion) while the total revenue was VND265.5 trillion ($11.7 billion) last year. The electricity sector therefore reported a loss of VND593.4 billion.
In 2016, it cost over VND1,665 to produce one kWh while the price was sold at some VND1,622 per kWh during the year.
Commenting on the hike, senior economist Ngo Tri Long said there are two notable things that can be deduced from the latest electricity price rise.
Firstly, in the previous price hikes when the rise proposals were made in advance and open for discussions, after that the actual adjustment option would be made. However, this time, the rise was made at once without any notification in advance.
Secondly, Long agreed with the Ministry of Industry and Trade’s explanation of the rise, citing that the real reason for price is the 2016 electricity production cost stayed higher than the price for sales, which caused losses for the sector.
However, he said the rate of electricity losses of the sector remains high compared to that of the region and the world, while the number of labors working for the sector hit over 100,000. As such, without any improvement in labor productivity and decrease in power losses, the electricity prices in Vietnam would maintain high, causing loss for local consumers.