Businesses getting apprehensive of electricity price increases

How to maintain normal production when the electricity price keeps rising is really a headache to enterprises. They have been advised to use modern technologies which allow saving energy. However, this proves to be out of the reach of small enterpris

It remains unclear if the electricity price would increase after June 1, 2011, but businesses have been warned that the electricity will keep rising in accordance with a plan on power price adjustment.

Vu Van Hien, Deputy General Director of Sadakim in Bien Hoa 1 Industrial Zone in Dong Nai province, said on Dau tu that he feels worried stiff.

“The electricity price now accounts for 10-15 percent of the total production cost in the mechanical engineering production,” he said. “If enterprises cannot receive exact information about the electricity price increase plan, it will be very difficult for them to define the sale prices of their products”.

He has also revealed that some foreign partners have complained that the mechanical engineering products of Vietnam are relatively high if compared with the products of the same kinds made in Thailand and Malaysia.

Nguyen Tri Kien, Director of Minh Tien Company, also said he now has to think about how to keep the production in the normal track, once the electricity bill makes up 10-12 percent of the production costs.

Kien said that after the electricity price increase in early March, the company still does not have to raise the sale prices of its products. However, it will have to raise the prices if the electricity price increases again as of June 1.

“We are considering upgrading the machines and equipments which consume much energy. Of course, this will require a heavy investment, but this proves to be the best solution which allows us to take initiative in the production, when the electricity price is on the rise,” he said.

Backward energy consuming technologies have been cited as the main reason that hinders the productivity of enterprises. Deputy Minister of Industry and Trade, Tran Anh Tuan said at a workshop held recently, that the technologies used by Vietnamese enterprises prove to be more outdated than the world’s currently used technologies for 2-3 generations.

76 percent of machines and production lines in Vietnam are the ones which were manufactured in 1950-1960, while 75 percent of equipments were fully depreciated and 50 percent of equipments are refurbished ones.

“In general, only 10 percent of machines and equipments being used at factories are modern, 38 percent at “average level”, while 52 percent are backward,” he said.

In Vietnam, only two percent of enterprises are using new technologies, while the proportion is 31 percent in Thailand, 51 percent in Malaysia and 73 percent in Singapore.

Also according to Anh, Vietnamese enterprises only use 0.2-0.3 percent of their total turnover to renovate technologies.

There are two choices for enterprises to deal with the backward equipments, either to upgrade the equipments or replace them with new ones. However, Hien said that both the solutions will require big sums of investment money.

“The lending interest rates now are overly high; therefore, it is really difficult to think of renovating technologies at this moment. Meanwhile, it is also not easy to upgrade the equipments, because of no spare parts,” he complained.

According to Do Duy Thai, Chair of Viet Steel Corporation, the Decision No 24 stipulates that the electricity prices will be defined based on the market supply and demand, and that the prices may increase four times a year at maximum. He said that if the price increases are too big, steel manufacturers will heavy suffer.

Meanwhile, the information that the power price at which Vietnam purchases from China has increased by 13 percent, from 5.1 cent per kwh to 5.8 cent since January 2011. This has given enterprises a start. Once the electricity purchase price increases, the retail price would also have to increase.

In principle, the Electricity of Vietnam has the right to raise the electricity price again from June 1, 2011 (three months after the previous increase). However, Tien phong has quoted officials as saying, that “it is still unclear if the price increase will happen.” – Vietnamnet

Tags: Vietnam electricity, Vietnam electricity prices, Vietnam energy