Should electricity, coal and petroleum prices be curbed or floated?

On the threshold of the 11th Communist Party Congress, coal, petroleum and electricity producers and distributors harshly proposed to raise retail prices. If the prices of essential goods increase, Vietnam may fail to curb the inflation rate. But if not, the producers will continue incurring loss, which will badly affect the national economy.

Incurring loss, raising retail prices

Though the Prime Minister has told coal, electricity and petroleum producers and distributors not to increase prices from now until Tet, the producers and distributors have been continuously mentioning the price increases.

It seems that energy economic groups maintain a more peremptory tone this year when proposing to increase retail prices of their products. The main reason that forces them to raise prices is that they are incurring heavy losses.

The price of electricity is considered the most sensitive issue. The Power Regulatory Unit, the Ministry of Industry and Trade and the Electricity of Vietnam are brainstorming how to calculate the increase of electricity price. Until now, all the projects on electricity price increases have been kept secret.

Meanwhile, Tran Viet Ngai, Chair of the Energy Association, believes that it is necessary to raise the electricity price by 48 percent to 1400-1500 dong per KWH, or 7-8 cent per KWH. Ngai believes that only such an electricity price will be high enough to attract foreign investors to the power sector.

“The current price is 5.2 cent per KWH, or a little over 1000 dong. If the price increases to 1100-1200 dong this year, miniscule increases will not help settle the problem and power plants will still incur loss,” Ngai said.

Also according to Ngai, the price of electricity in Singapore and Malaysia is over 14 cent per KWH, while the price is 18 cent in Cambodia, or three times higher than that in Vietnam.

Unlikelast year, when Vinacomin proposed a sharp price increase of 137 percent, the economic group has proposed a 2-stage price increase plan. For the immediate time, Vinacomin has proposed a 40-45 percent increase.

Meanwhile, the price increase of 30 percent has been proposed for cement, paper and fertilizer.

Explaining the price increase proposals, Vinacomin said that in 2010,Vincom sold coal to power plants at prices equal to 54-59 percent of the domestic prices, 35-40 percent of export prices and 67-73 percent of the production costs. Meanwhile, Vinacomin sold to cement to chemical and paper producers at prices just equal to 60 percent of the export prices. As the result, Vinacomin incurred a loss of three trillion dong.

Meanwhile, Petrolimex, the petroleum importer and distributor which now holds 60 percent of the market share, reported a 700 billion dong loss last year due to increases in the dong/dollar exchange rate.

Curbing price increases or floating them?

It is not by chance that a series of general corporations have been insisting on raising sale prices. Representatives of some economic groups said that they hope to see something new after the 11th Communist Party Congress.

To date, there have been big gaps between the viewpoints about whether to increase the prices of essential goods. Big general corporations always urge the government to float the prices and “marketize” the prices. Meanwhile, ministries always ask corporations to keep prices stable in order to curb inflation.

Of course, businesses have to obey instructions from the ministries and they have to endure loss. However, with the 11th Party Congress, the corporations hope to see changes in the viewpoints and methods of market regulation.

Ngai from the Energy Association said that the high inflation rate has been caused by many factors, not by the electricity price. He believes that the solution for now is not to try to curb the electricity price at a low level, but to set up a reasonable pricing mechanism. The electricity price should be low for remote areas, but the price for other areas should be as high as the regional levels.

The low electricity prices could hinder the development of the power industry. A lot of licensed foreign invested projects have not kicked off the project because they are still awaiting new policies on the electricity pricing scheme. These include the Hai Duong thermopower plant funded by a Malaysian investor under the mode of BOT, or Mong Duong 2 project funded by an US enterprise. – Vietnamnet

Tags: Vietnam Coal prices, Vietnam electricity prices, Vietnam Petrol prices