Workers maintain an electric grid in Hanoi. Vietnam raised electricity prices by 5 percent on July 1. Photo: Reuters
Electricity of Vietnam (EVN) says its recent price hike will not have a significant impact on production but various industry groups argue that it could be the last straw for many recession-weary firms.
The state utility raised electricity prices by 5 percent on July 1 in an attempt to offset losses. Power tariffs have risen to an average of VND1,369 (7 US cents) a kilowatt-hour.
The move came after inflation slowed, apparently giving EVN the right timing for a price hike that the group had sought for months. It said the increase will not have a significant effect on production or the daily lives of consumers.
But several reports from local media suggest otherwise, citing complaints from many businesses who are struggling with an economic slowdown.
Pham Chi Cuong, chairman of the Vietnam Steel Association, told news website VnExpress that power bills account for between 6 percent and 10 percent of production costs at steel companies. With the maximum price for manufacturers raised by VND281 per kWh, it would cost an extra VND168,000 to produce a ton of steel.
Cuong said a 5-percent hike could be acceptable at a different time, but right now it is a "harsh blow" on businesses.
Nguyen Van Thien, chairman of the Vietnam Cement Association, said his industry has been half-dead this year with an inventory of two million tons. The total cement output in the first five months fell 16.8 percent from the same period last year to 19 million tons.
The recent hike will just make the companies "die more easily", Thien said, noting that the association has been calling for power prices to be kept unchanged, to no avail.
More than 26,300 companies shut down or halted operations in the first six months, up 5.4 percent from the same period last year, the General Statistics Office said last week. That compared to 36,195 new companies that were established in the period, down 12.5 percent from the first half of last year.
Fewer new businesses and more closures are the result of difficulties enterprises are unable to overcome, the office said.
Pham Ngoc Hung, vice chairman of the Ho Chi Minh City Business Association, was quoted by VnExpress as saying most companies using a lot of power for production have protested the recent hike.
He said the increase, coupled with high interest rates and rising transportation costs, will make it very difficult for producers to make profit. "Local companies will become less competitive in the domestic market and risk losing export markets as well."
Hung said instead of raising prices during these tough times, EVN should try to reduce power losses in transmission and cut operational costs.
The Vietnamese government, still subsidizing power prices, plans to restructure the electricity market in three steps creating a competitive power generation market, a wholesale market, and a competitive retail market. The first stage was launched July 1.
EVN last increased power prices in December, raising the tariffs by 5 percent to VND1,304 per kWh.
It reported an estimated loss of VND3.5 trillion ($166.4 million) for 2011.
Economist Le Dang Doanh told the Vietnam Economic Times that the power hike seems to have come at the right time, with consumer prices in June falling 0.26 percent from the previous month. However, considering many firms are facing difficulties doing business, the increase is not really reasonable, he said.