VINACHEM

The Ministry of Industry and Trade announced the price of electricity would rise to an average VND1,508.85 per kWh (exclusive of value added tax), a surge of VND71.85 (5 per cent).

The adjustment aimed to partly offset for the increased cost of power generation caused by the price hike of coal and gas.

However, the move was a surprise to most people since the last electricity price rise was only in December. Also, the Government has always been cautious about raising power prices to curb inflation and stablise the macro economy and because many firms suffered from high inventories.

Owner of freezing storehouses in Ha Noi's Hoan Kiem District Nguyen Thi Hieu said the cost of electricity made up 30 per cent of her total outgoings.

"From the beginning of this year, costs have increased but to avoid losing clients we can't raise the rent," she said.

Nguyen Hong Quang, director of Quang Lan Mini Mart supermarket in Long Bien District, said: "We are struggling to balance costs and revenue; more spending on power means less spending on other things."

Chairman of the Ha Noi Supermarkets' Association Vu Vinh Phu said purchasing power was still weak and the increased electricity price was likely to cause deflation.

Most supermarkets were planning to increase the prices of products while minimising costs, he said, emphasising it was a tough problem.

Deputy General Director of Viet-Uc Steel Company said the power price rise was an extra burden to the industry already buckling under high inventories caused by the slowdown and the stagnant housing market.

"The Government offered policies to stimulate production and consumption but the increase in power prices could hinder its efforts," he said.

Meanwhile, president of the Viet Nam Energy Association Tran Viet Ngai said the price hike was necessary.

Power prices were about 7 cent per KWh, 3 cents lower than in neighboring countries, he said, noting that the low prices depressed investors in power projects and Electricity of Viet Nam had suffered losses and didn't have enough capital to re-invest in production.

"Without reinvestment in the power sector, energy security may be threatened," he said.

He emphasized, however, that in the long-term a suitable road map for the power price hike was needed so that enterprises could adapt properly.

At a recent monthly press conference, Government Office Minister Vu Duc Dam said higher power prices were expected to boost technological innovation and energy efficiency in projects in Viet Nam.

"Moreover, with a limited State budget, Viet Nam is calling on the private sector to join the power industry but low prices accompanied by low profits had failed to attract investors," he stressed.

Dam said the Government would relieve the burden on the poor and heavy laden and low-income earners. Under the new power price adjustment, poor and low-income households that use 0 to 50 kWh per month will be charged the same amount (VND993) as before but households that use 100-400 kWh per month will be charged an additional VND6,800 to VND37,000 per month.

The last electricity price rise was 5 per cent (or VND68 per kWh) to VND1,437 per kWh, on December 22.

On Saturday, Deputy Prime Minister Hoang Trung Hai hosted a meeting of the Steering Committee on National Power Development Plan No 7 to scrutinise the implementation of power projects.

According to the Ministry of Industry and Trade, power productivity would rise by 13 per cent in the next two years.

Power demand will be met from now until 2016-17, but after that period, there will be a shortage of 600 million kWh per year.

Hai asked relevant authorities to carefully calculate demand and productivity, and look at every eventuality for investment in power projects until 2015.