Vietnam’s Electricity Price Hike in Nearly 3 Years to Add Inflation Pressures

Ngan Nguyen

11:03 05/12/2017

BizLIVE - The recent hike in power prices in Vietnam has stirred a debade among locals and will put pressures on the country's inflation.

Vietnam’s Electricity Price Hike in Nearly 3 Years to Add Inflation Pressures

The average retail electricity price has been raised since Dec. 1, 2017. Photo: Electricity Regulatory Authority of Vietnam under the Ministry of Industry and Trade.

The Vietnamese government’s latest decision to raise power prices for the first time in nearly three years has been well measured and will add more pressures to inflation next year. 
The government has announced an official increase of 6.08% of local electricity retail price from December 1, 2017 to hit 1,720 dong (7.6 U.S. cents) per kWh. The rise stirred a lively debate among locals as it is the first in the past nearly three years.
In response to media’s inquiry over the rise, Industry and Trade Deputy Minister Do Thang Hai said last week 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,” said Hai.
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%, which was 0.37 percentage points lower than that of 2015.
Total electricity production cost was 266.1 trillion dong ($11.72 billion) while the total revenue was 265.5 trillion dong ($11.7 billion) last year. The electricity sector therefore reported a loss of 593.4 billion dong.
In 2016, it cost over 1,665 dong to produce one kWh while the price was sold at some 1,622 dong per kWh during the year.
Nguyen Anh Tuan, head of the ministry’s Electricity Regulatory Authority of Vietnam, said the power price hike will lead to an increase of 5.4% in expenses of household businesses while making no remarkable change to that of retail customers.
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, the expert 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.
Being asked whether it is a suitable to increase the price now, Long said based on the input cost for electricity production, the explanation from relevant authorities is reasonable.
“Nevertheless, it should be noted that the Consumer Price Index (CPI) is calculated from the 20th day of this month till the 20th day of the following month. As such, the electricity price hike will have affect only the first 20 days of December 2017, so it will cause no major influence on inflation control efforts of this year.
However, it will have impact on the first quarter (Q1) of 2018. Especially, recently, local oil and gas prices experienced continuous rises, which lay another kind of pressure on inflation in Vietnam in Q1/2018,” Long added.
Echoing Long, Tuan quoted the calculation of the General Statistics Office as saying that the power price hike will drive the CPI to rise 0.08 percentage points and 0.1 percentage points in 2017 and 2018, respectively.
The economist also warned that despite a minor adjustment, the electricity price rise will affect some certain economic sectors.
Local authorities are urged to enhance control to avoid “domino” effects which can put pressure on local consumers and enterprises.

NGAN NGUYEN

Từ khóa: inflation, EVN, CPI

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