Electricity hike hits industry hard

VNS/VOV

Vietnamese manufacturers are set to increase their selling prices following the 8.36% hike in electricity price that launched from March 20.

Vietnam Cement Industry Corporation (VICEM) But Son announced it would increase the price of its cement by VND30,000 (USD 1.29) per tonne immediately after the power price increase.

Do Tien Trinh, VICEM But Son’s general director,said that in addition to the electricity tariff hike of 8.36%, the price of coal sold to cement producers also increased by 2.3 to 5.8% depending on the kind of coals.

The coal price increase came because electricity accounts for 10% of production cost. In addition, the Vietnam National Coal and Minerals Industry Holding Group (Vinacomin) has not provided enough coal to cement producers, making them import the product at high prices.

Trinh said the firm could not afford to offset the rise in input costs and had to increase retail prices to ensure sustainable production.

VICEM Tam Diep Company also had the same increase in the selling price.

According to Pham Van Minh, the company’s general director, no business wants to increase retail prices, but electricity and coal make up a big portion of input material costs for cement production.

Cong Thanh Cement Joint Stock Company in the central region did not raise its retail prices but is charging distributors VND 30,000 more per tonne.

Nguyen Quang Cung, chairman of Vietnam Cement Association said cement producers were not surprised by the power tariff hike and had been preparing for the change.

Its calculations showed if the electricity price was increased by 8.36%, cement production cost would rise by VND 14,000 to VND 15,000 per tonne.

Steel producers also said they would increase their selling prices.

SSE Steel Company said it doubled its steel selling price to VND 200,000 per tonne, while Thai Nguyen Steel and Iron Corporation (Tisco) increased its selling prices by VND 150,000 to VND 200,000 per tonnes.

The Vietnam Steel Association said it was unavoidable for steel producers to raise their prices as power accounted for 8 to 9% of total production costs. In addition, the import prices of iron ore and steel billets were also rising this year, affecting steel production costs.

Nguyen Anh Tuan, head of the Electricity Regulatory Authority of Vietnam (ERAV) under the Ministry of Industry and Trade (MoIT) told a press meeting last week that there were about 1.4 million manufacturing businesses in Vietnam who spend on average VND 12.39 million per month on electricity. The average increase in their power bills would be VND 870,000 a month.

While electricity prices have almost doubled in the last decade, the MoIT said Vietnam’s electricity prices were 8.1% lower than that of China and India, 18% lower than Laos and 26.5% lower than Indonesia. Even with the latest increase, the prices would only be on par with China and India.

“Vietnam’s electricity prices are lower than other countries. It is the reason that foreign investors are not interested in investing in electricity projects in the country,” said deputy minister Hoang Quoc Vuong.

However, chief economist of the Bank for Investment and Development of Vietnam (BIDV) Can Van Luc suggested the Government needs to eliminate cross-subsidising mechanisms for units using electricity.

At present, industrial sectors consuming large amounts of electricity, accounting for 55% of electricity density, such as cement, iron andsteel, are being compensated for electricity prices and only subject to the lowest price of 6.8 cents per kWh. Meanwhile, electricity costs households 8.7 cents per kWh.

“Currently, consumers using electricity for domestic use as well as service enterprises are compensating a certain amount for industrial production enterprises – that is unfair. When there is fairness, people and businesses will agree and are willing to pay more reasonable electricity prices,” Luc said.