Power price hike shocks Vietnam struggling industry

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A proposed hike in electricity prices could be the last straw for businesses that are already struggling to survive.

According to a draft decision of the Ministry of Industry and Trade, which, if approved, will take effect after the current regulations expires on July 1, price of 22-110 kilovolt (KV) power, which is often used by industry, will increase by 2-7 percent.

Steel and cement firms will pay 2-16 percent more than others to offset losses made by the state-owned Electricity of Vietnam when selling power to them.

The price of power sold to them was only VND914 per kWh compared to the average price of VND1,183 in 2010, meaning EVN made losses of over VND2.5 trillion.

Average power tariffs now stand at VND1,437 (6.8 US cents) per kilowatt-hour after a 5 percent hike last December.

Nguyen Tien Nghi, vice chairman of the Vietnam Steel Association, said the price hike would deal a big blow to steel producers, who are already struggling because of the stagnant property market and fierce competition from imports.

"Considering many firms are facing difficulties, the increase is not reasonable. More steel producers will face the risk of bankruptcy," he said.

For billet producers electricity accounts for some 6 percent of costs.

"Power tariffs for steel makers should be equal to other producers'," Nghi said.

"Steel makers' bankruptcy will also affect other sectors, including construction and home appliances production."

Truong Anh Tu, director of a machinery production firm in Hanoi's Quang Minh industrial park, 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.

"Such a hike will cause more companies to go broke."

According to a recent report by the Vietnam Chamber of Commerce and Industry, the number of businesses that shut down or suspended operations increased by 6.29 percent last year to more than 54,200.

Economist Nguyen Minh Phong said the power price increase, coupled with rising transportation costs, would make it difficult for producers to break even.

"Companies will become less competitive in the domestic market and risk losing export markets as well."

He said instead of raising prices during these tough times, EVN should try to reduce transmission losses and cut costs.

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