Electricity price increase has minimal impact

The latest electricity tariff hike announced by the Ministry of Industry and Trade seems to be a bit of a problem for domestic businesses and citizens.

On November 9, the ministry and state-owned utility Electricity of Vietnam (EVN) announced a 4.5% increase in the retail price of electricity to VND2,006.79 ($0.082) per kWh.

The increase is the second this year. The first came on May 4, when the retail price of electricity rose 3% to VND1,920.37 ($0.079) per kWh.

EVN engineers inspect power lines. Photo: Khac Kien/The Hanoi Times

According to EVN, the price hike will increase household electricity bills by between VND3,900 and VND55,600 (between $0.16 and $2.29) per month, while businesses will have to pay an additional VND432,000 ($17.76) per month.

For many small and micro businesses and families in Hanoi, the increase would be acceptable if a constant, stable supply is guaranteed.

Nguyen Thu Trang, owner of a restaurant on Bach Mai Street in Hanoi, told the Vietnam News Agency that she spends about VND10 million ($411.10) on electricity every month.

A 4.5% increase in the price of electricity will add VND400,000 ($16.44) to her monthly electricity bill, she said.

It is a big increase, but it is worth it if it means better services and supplies, she said.

Nguyen Van Ket, director of SKD Vietnam LLC, said the increase in electricity prices will have an impact on businesses, but it will be slight as electricity costs only account for 10-15% of total expenses.

The total production cost may increase by 1% if the electricity price increases by 4.5%, which is still acceptable, he said.

"We are trying to fulfill orders during the year-end and all the machines are running at full capacity. Sudden power cuts will not be good for our company," he said.

"We understand all the difficulties we are facing. I hope the price hike will offset other expenses and that the power infrastructure will be improved to stabilize the supply."

The latest increase will add about VND3.2 trillion ($131.5 million) this year to offset EVN's financial burdens, while it may add 0.035% to the consumer price index (CPI), said Nguyen Dinh Phuoc, chief accountant at the Electricity of Vietnam (EVN).

The group will cut regular expenses by an additional 15% and minimize the use of lighting equipment in all units to help solve financial problems, Phuoc said.

Nguyen Van, vice chairman of the Hanoi Supporting Industries Business Association (HANSIBA), said Vietnamese companies have received more orders recently.
The increase in electricity prices will affect local businesses, but the impact is not significant, and it is not their main concern, Van said.

"The key is to ensure the quality of products and services, and the stability of power supply," the official said.

A controversial debate

Other businesses are unhappy about the power price hike, fearing it will affect their operations towards the end of the year.

Do Phuoc Tong, chairman of Duy Khanh Engineering Co Ltd, said the hike comes at a "sensitive time" and will cause headaches for power-consuming companies such as engineering firms and steel producers.

The companies cannot raise sales prices when negotiating new orders due to fierce market competition, he explained.

Tong's company sells its products to both domestic and international markets. "If we raise our selling prices, we will lose customers to other suppliers in neighboring countries," he told Thanh Nien (Youth) newspaper.

"Cost efficiency is our advantage. But since the new electricity prices have been set, I can see that our profit will be narrowed," he said.

Nguyen Thai Trang, owner of the D&T garment company, estimated that the hike would cost her company an additional VND6 million ($246) in electricity bills, the equivalent of one month's salary for one worker.

"We can't make buyers bear such a burden. The electricity price hike will eat into our future profits," she said.

According to Nguyen Quoc Viet, deputy director of the Vietnam Institute for Economic and Policy Research, manufacturers and producers will face pressure in the last month of the year.

In May, the 3% increase in electricity prices pushed up electricity costs by 9-10% for steel producers, 14% for cement producers, and 5% for paper companies, he said.

"The latest hike will also affect inflation as high demand drives up production capacity," he said. "In such a difficult period, enterprises need to be very skilled in financial management to make some profits."

Viet pointed out the timing, as the hike comes when demand for refrigerators is quite low.

Amid economic uncertainties, Viet said the hike should be reasonable to balance the benefits for EVN, the State and the people.

The expert suggested that there should be solutions to strengthen domestic businesses, such as improving access to credit and streamlining administrative work.

Economic and financial expert Dinh Trong Thinh said regulators must strengthen supervision to ensure a reasonable market price level and guarantee that this year's full-year CPI growth target of 4.5% is achieved.

"Commodity prices often rise at the end of the year because people have to prepare for Tet (the Lunar New Year)," he explained.

"If the market is not well controlled, producers and distributors may take unfair advantage of the increase in electricity prices to raise their  prices."