Industrial producers fret over power price hike, starting March 16

By Bao Van, Thanh Nien News

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Electricity price hike will deal a big blow to the steel industry. File photo Electricity price hike will deal a big blow to the steel industry. File photo


Industry is worried about both the upcoming power price hike and the knock-on effect it is likely to have on their other inputs.
The government recently decided to increase electricity prices by 7.5 percent with effect from March 16 to VND1,622 (7.7 US cents) per kWh.
Major consumers like steel, cement and pulp manufacturers are among those likely to be most affected by the hike.
For instance, power accounts for some 7 percent of production costs for steel enterprises. Steel plants use 400-600 kWh for the production of a ton of steel billet, according to the Vietnam Steel Association (VSA).
"Electricity price hike will deal a big blow to the steel industry,” former chairman of the VSA Pham Chi Cuong said.
“Prices of steel imported from Japan and China are lower than locally produced steel. A power hike will make it even harder for Vietnamese companies to stay competitive.
“The power price hike will make some steel plants using outdated technology and consuming large amounts of electricity face the risk of bankruptcy.”
Steel makers' bankruptcy would also affect other sectors, including construction and home appliances production, he said.
Expressing similar concern, the head of a cement plant in the north said power accounts for 15 percent of his firm’s costs, and the hike would significantly increase its production costs.
But it cannot hike prices because of the glut in the domestic market, and losses may be inevitable for many companies, he said.
Companies would have to pay more not only for power but also other materials since there would be a knock-on effect on their costs too, he pointed out.
Vo Tri Thanh, deputy head of the Central Institute for Economic Management said no consumer or business wants power price hikes, but it is required to adjust power prices in accordance with the market.
Vietnam should not charge less than production cost for power since it would discourage investors, he said.
The country has failed to attract investment in thermal power generation due to the low price paid by the state-owned Electricity of Vietnam (EVN), which produces 70 percent of the electricity in Vietnam and is the country's sole distributor.
The country cannot expand its hydroelectricity production due to limited water resources.
EVN should ensure transparency in its price calculations and business performance, Thanh said.
Government officials said input costs, including coal prices, have been rising sharply and without the power price hike EVN would have made a possible loss of VND12 trillion this year.
But critics said it is EVN's usual tactic to justify price hikes, one that has always raised doubts among consumers and economists due to the lack of transparency in its price calculations and performance.
Prices, including the costs of production, transmission, distribution, and management are based completely on EVN's estimates rather than any independent audit, and so it is difficult to establish their accuracy, Ngo Tri Long, an independent economist, said.
“For monopoly products like power, we need an independent unit to check prices,” he said.
He said auditors should look into EVN’s staffing and production process to see if the giant has made any real effort to reduce costs.
He said the public and businesses would not benefit if the market is not competitive.
Le Dang Doanh, another economist, said the electricity price hike would force companies to use better technologies to cut production costs, improving their competitiveness.

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