Likely electric rate hikes worry industry

Industries are expressing concern about another increase in electricity rates expected in June, when a regulation takes effect allowing rates to be set on a market-based system.

Enterprises would face challenges maintaining production if power rates are drastically increased at a frequency of up to four times per year, in accordance with the recent Government decision, said Thep Viet Co chairman Do Duy Thai.

Government Decision 24/2011D-TTg allows electricity rates to be periodically adjusted under a market-based system, beginning June 1.

Under the decision, Electricity of Viet Nam (EVN) is authorised to propose rate adjustments to the Ministry of Industry and Trade whenever input cost factors such as oil prices and foreign exchange rates change.

Deputy Minister of Industry and Trade Hoang Quoc Vuong vowed that, before rate hikes would be approved, EVN would also have to provide an assessment of the impact of the increase on the economy and on social welfare.

The ministry is presently drafting two circulars to implement the decision. They would provide guidance on how rates would be established for different user groups and on how rates would be calcluated based on input costs.

The two circulars are expected to be completed by June when the decision takes effect, but it is widely expected that electricity rates will rise again shortly after the new regime takes effect.

Power prices already accounted for 10-15 per cent of total production costs in his industry, said the deputy general director of Sadakim Mechanical and Metallurgical Joint Stock Co, Vu Van Hien. Enterprises without a specific advance schedule of electricity rate increases would have difficulty in establishing selling prices, Hien said.

Many overseas customers have already complained of the high prices of metal products made in Viet Nam compared to the same products made in other countries, he added.

Nguyen Tri Kien, director of Minh Tien Handbag Sewing Co, said his company has not yet increased product prices in response to the last electricity rate increase in March, but asserted that prices could no longer remain unchanged following another rate hike in June.

In March, power rates jumped by an average of 15.28 per cent over the previous year to VND1,220 per kWh.

The Minh Tien company has reviewed equipment and production systems to conserve power, Kien said, but significant savings would require a major long-term investment by the company.

Deputy Minister of Industry and Trade Tran Anh Tuan said old-fashioned equipment and technology was causing industries to use more power than necessary and incur high costs. He estimated that only 10 per cent of the enterprises in Viet Nam have updated equipment, while 38 per cent are using moderately outdated equipment and the remaining 52 per cent severely outdated equipment.

Vietnamese enterprises have made meagre investments in technology, Tuan said, with such investments amounting to only 0.2-0.3 per cent of total earnings. Just 2 per cent of enterprises have applied modern technology to production, compared to rates of 31 per cent in Thailand, 51 per cent in Malaysia and 73 per cent in Singapore. But obtaining the large amounts of capital needed for long-term upgrades was problematic in the current economy, Hien said, noting tight credit conditions and high interest rates for bank loans currently. — VNS

Tags: Vietnam electricity, Vietnam electricity market, Vietnam energy