Power prices were raised by 5 percent last week, and more hikes are expected in 2013

A 5 percent increase in power prices last week has attracted widespread criticism as an inconsiderate move given the current economic situation, but state-owned utility Electricity of Vietnam says it has no choice.

The monopoly, also known as EVN, said input costs including prices in gas and coal have risen, so its second price increase of the year is “acceptable” and “reasonable.”

The average power price rose to VND1,437 (7 US cents) a kilowatt-hour from VND1,369 on December 22. Prices were last increased on July 1, also by 5 percent.

Economists said the company has been “clever” by choosing a day near the year-end for the increase, just as it did last year on December 20, so that it would not look bad for impacting economic indicators like inflation, which has already been finalized.

They said EVN only wanted to save itself and ignored problems facing businesses and consumers during the holiday season, with the country’s biggest celebration, Tet (Lunar New Year), coming in five weeks.

“The hike will add significantly to prices, increasing the burden on people who are already in difficulties,” said economist Le Dang Doanh. “It is not simply that each family just pays some extra bucks for their power bill as EVN puts it.”

Doanh said EVN has just put more pressure on Vietnamese businesses, causing more troubles to their production and possibly enlarging their stockpiles.

News website VnExpress cited directors of many small and medium enterprises as saying they will have to accept the new prices anyway, though they are very unhappy. Power costs are a big part of their expenses, they said.

Ho Quoc Luc, director of a food company in the Mekong Delta, said his company has been paying power bills of nearly $1 million a year already, and a tariff hike is the last thing he needs when times are so hard.

Nguyen Hung Cuong, director of a Hanoi-based stainless steel maker, said EVN can make its argument, but now should not be the time to put more burden on businesses that have tried everything they can to cut costs in order to survive over the past year.

“Businesses are struggling; some are even unable to pay their staff,” Cuong said.

The directors said almost all companies in the country have been making much less profit than 2011, if they were not making losses. 

They said the power price increase will force them to raise their prices at some point, and make things rougher for their business.

The director of a steel manufacturing firm in Ho Chi Minh City said a power price increase of 5 percent can raise the price of his company’s products by up to 10 percent.

‘Not our job’

EVN’s losses totaled VND2.59 trillion ($125.2 million) last year, the biggest among state-owned enterprises in Vietnam, according to official statistics. That brought the group’s cumulative losses to VND38.1 trillion, also the largest in the SOE sector.

But this year the group is set to post profits of VND3.5 trillion to VND4 trillion ($168-192 million).

Responding to economists’ accusations that it was not being considerate, Dinh Quang Tri, EVN’s deputy general director, said it’s not its job to calculate the impacts on businesses. The company still needs to offset its own big losses from previous years, he added.

Tri said there are businesses that are struggling, but there are also those that are doing fine, and Vietnam’s power prices are much cheaper than other countries in the region.

EVN’s overdue payments by the end of last year have reached VND10.15 trillion ($488 million), according to a report by the Ministry of Finance.

Several reports said EVN will not hand out any bonuses to its employees for the upcoming Tet.

Power prices have been subsidized in Vietnam, but the government in July allowed EVN to set prices based on market conditions starting next year.

“Power generation needs a free competitive market and the consumers have to accept that. That’s the common rule,” Tri was quoted by VnExpress as saying.

Tri said severe water shortages expected in 2013 can also force the corporation to use oil to generate power, which will raise its costs by a further VND7 trillion ($336 million).

He hinted that there could be several price hikes coming, of more than 5 percent each time.

But experts say EVN, which controls the country’s power grid, has not been transparent about its financial situation.

They say the utility should provide clear details of its cash flow instead of claiming losses that cannot be verified, and imposing new prices at will.

Tran Viet Ngai, chairman of the Vietnam Energy Association, said the company should also provide figures of its costs and revenues instead of only its losses. Otherwise, the loss figures do not mean anything to affected businesses and residents.

Economist Nguyen Minh Phong also said the latest power price increase is “completely unsuitable to the general economic situation,” so EVN needs to provide a good reason.

Phong said the company should announce clear plans showing when it will finish balancing its losses and if it will reduce prices then or maintain the high prices to earn profits.

EVN was criticized for extravagant spending last August when its southern unit, the Southern Power Corporation, tried to send 400 executives abroad for training. The plan had to be called off to calm down the public who was then unhappy with a power price increase on July 1.

The December 22 increase is the sixth hike in rates since 2009, and EVN has always blamed them on rising expenses.

While the company has frequently increased prices, it has never cut them when production costs went down, like when the water supply for hydropower plants is ample during the rainy season, managers of some small and medium-sized plants said.

At a meeting in July, they said EVN has been paying them VND650 (3 US cents) per kilowatt-hour since 2006, though it increased prices by 57 percent.

Power producers and customers will be protected from such arbitrary pricing only when a competitive power distribution market is established, most likely after 2022, they added.