Vietnam is set to increase prices of electricity, which is selling under cost, in a bid to attract investors in the power sector, but experts warn such a move will jeopardize all recovery chances for the economy.
The Ministry of Industry and Trade is now reviewing a proposal from the state-owned Electricity of Vietnam, often known as EVN, to raise power prices by 9.5 percent, from the current average of VND1,508 (7 US cents) per kWh.
EVN has been increasing prices every year, and its new proposal has been backed by Deputy Minister Do Thang Hai, who said power price hikes will benefit the government, businesses in the sector and even the public.
He said that compared to other countries, Vietnam is charging for power less than the production cost, which discourages investors.
But economist Ngo Tri Long said the government is not being objective here.
“For monopoly products like power, we need an independent unit to check their prices,” Long said.
He said that auditors should look into EVN’s staffing and production process to see if the giant has made any real efforts to reduce costs.
He said people will not have any benefits if the market is not competitive.
EVN cannot compare its prices to foreign prices because Vietnam mostly uses hydropower, which is cheap.
Economists said a surge in power prices would make it very difficult for the local economy, which is already anticipating an increase in fuel costs.
The Ministry of Finance and the Ministry of Industry and Trade said they have been drawing money from the price stabilization fund to keep pump prices stable. Gas prices could have surged 16 percent in late February.
Officials said they tried to save people from the shock after Tet -- the year’s largest festival -- that peaked on February 19.
But economists said the stabilization fund will not be of help for long and Vietnam will have to follow the global upward trend in fuel prices soon.
As much as 70 percent of fuel in Vietnam comes from overseas supplies, which have become more expensive over the past weeks.
Economists said Vietnam’s businesses are still struggling and people are still very cautious with their pockets, so it’s a very sensitive time for any price hike.
Long said it’s unusual that inflation kept falling the past four months and this trend proves that production has not recovered and people are still tightening their belt.
Power and fuel price increases will only make that worse, he said.
“The recovery process of the economy will be delayed.”
Economist Le Dang Doanh said local businesses will have to raise their prices and people will use more foreign products, many of which are being imported to Vietnam with zero tariffs.
Another economist, Bui Trinh, said price increases will destroy all the chances of economic recovery brought by a series of gasoline price cuts since last July.
“A 9.5 percent power hike will shed 1.1 percent from the country's gross domestic product," he said.