Electricity price increase will kill anti-inflation goals

Electricity price increase will kill anti-inflation goals
16:35' 07/03/2008 (GMT+7)
VietNamNet Bridge – Experts have warned that if the electricity price is raised to VND917/kwh, as requested by Electricity of Vietnam (EVN), this will make the target of single digit inflation unreachable.


Several days after the Government announced that it would raise the petrol price, people began hearing news about EVN’s tentative plan to raise the electricity price to VND917/Kwh.

Under the plan on the electricity price increase, which was approved by the Prime Minister, the electricity price will be raised to VND890/kwh in 2008. However, EVN, reasoning difficulties in electricity production, including higher material prices, has proposed the State raise the retail electricity price to VND917/kwh instead.

Though Minister of Finance Vu Van Ninh has reassured the public that the electricity price will only be discussed later, possibly at the end of the year, the news has been concerning people, especially those most affected by the commodity and service price increases.

EVN”s proposal to raise the electricity price, once again, is not applauded by economists and the public.

Nguyen Minh Phong, Head of the Socio-Economic Division under the Hanoi Economics Institute, said the factors that EVN has cited in its proposal to raise the electricity are unreasonable.

To date, electricity remains monopolized by EVN. Therefore, the State must control the electricity price. Once the Government approves the plan on the electricity price increase, EVN has the responsibility of following the plan, and cannot propose another price rise.

EVN complains that it has been incurring losses due to the continued material price rise. However, as Vietnam still does not have a competitive electricity market, it must not ask to float electricity prices.

Electricity is the input material for many industries and branches. EVN claims loss and demands for price increase. The higher electricity prices will lead to the price increases of many other products. As the prices of other products increase, this will affect the electricity production, and EVN, once again, want to raise the sale prices. This would be a vicious circle, said Phong.

According to Phong, there are two problems EVN needs to reconsider. First, it needs to check if the electricity loss level during the production and transmission is acceptable or not. And second, it has to control the electricity production cost strictly.

In fact, no one knows the real production cost of EVN to conclude if the production cost is at reasonable level, because EVN’s audited financial report has never been made public.

“We hear them complaining about loss all the time. However, I think that we should have an independent auditing agency which can verify if EVN makes loss as it says,” Phong said.

Nguyen Dinh Anh, Deputy Head of the Pricing Institute under the Ministry of Finance, said that the electricity price increase proves to be necessary, especially with the recent petroleum price increase. However, he said the Government should consider where and how high to raise the prices, in order to avoid shocks to the national economy.

“The two biggest tasks for the Government now are to develop economy and curb inflation. If it raises the electricity price at this moment, the task of curbing inflation below the economic growth rate proves to be unfeasible,” Anh said.

An official from the Central Institute of Economic Management (CIEM) said that in the current circumstances, raising the electricity price spells the socio-economic uncertainties. The Government will face the latent uncertainties, as people’s and investors’ confidence will reduce.

“People’s worries about the petroleum price increases have not subsided yet when they hear the news about the electricity price increases. There is an important thing the Government needs to do now is to reassure the public,” he said.

The consumer price index (CPI) climbed to 6.02% in the first two months of the year. Experts said that in the context of bad weather, epidemics and global fuel shortage, the electricity price increase will deal another strong blow on the national economy, which will result in dramatic price fluctuations, stagnant production and many other consequences.

(Source: VNE)