Electricity rates to increase 6.8%

Workers of Hoa Phat Steel Co produce steel in northern Hung Yen Province. Overall industrial production costs will increase by no more than 1 per cent due to electricity price hikes, says the Ministry of Industry and Trade. — VNA/VNS Photo Hong Ky

Residential rates would go up by 6.8 per cent while the rates for industrial uses would rise by 6.3 per cent and those for commercial uses, by 6.1 per cent. In order to encourage conservation, separate rates would be applied for peak hours.

The new rates would average VND1,058 per kWh.

Deputy Minister of Industry and Trade Do Huu Hao told the conference that the rate hike was a necessary step in the roadmap toward deregulating the energy industry and allowing the market to set rates.

"The increasing costs of electricity generation this year also necessitate the increase," Hao said.

These costs had risen by an estimated VND2.6 trillion ($134 million) and were expected to climb further due to rising fuel costs and the devaluation of the dong.

The price of coal dust No 4B sold to power plants was expected to rise by 47 per cent this year, while that of coal dust No 5 was predicted to increase by 28 per cent.

The nation's electricity rates remained the lowest among ASEAN countries, said Electricity of Viet Nam (EVN) deputy director Dinh Quang Chi.

"After this increase, the cost will reach $0.0554 per kWh, still lower than Singapore's $.13 rate, the Philippines' $0.175, Malaysia's $0.076 and Thailand's $0.085."

Hao said the 6.8-per-cent rate hike would decrease gross domestic product (GDP) in 2010 by 0.34 per cent and cause inflation to rise by an additional 0.2-0.27 per cent.

Many enterprises were worried that higher electricity rates would drive up their production cost and lower their competitiveness on the market. However, Hao said, average increase in overall production costs to most manufacturing enterprises would not exceed 1 per cent.

The manufacturing sector would pay VND2.63 trillion ($137.7 million) more for electricity this year, following the increase, equivalent to 0.36 per cent of industrial production.

In some industrial sectors in which electricity costs can account for as much as 30-40 per cent of production costs, such as water supply and treatment, product prices could increase by 2.8-3.15 per cent. Steel and cement producers might also see their costs rise by 0.2-0.7 per cent.

To lessen the impact on low-income households, meanwhile, the rate aplied to households with a monthly consumption below 50 kWh would remain unchanged at VND600 per kWh. Staggered rates would result in households using 400kWh paying VND36,500 (about $2) per month more on their electrical bill.

"The impact on the cost of living of people will not be significant," Hao said. "Prices of essential goods such as food, clothing and fuel will not be affected much, as the proportion of electricity in the total production costs of these products is not high."

However, Hao said, many businesses might try to take advantage of the rate increase as an excuse to raise retail prices and authorities needed to tighten market control efforts to reduce this negative impact. — VNS