Deputy Minister of Finance Tran Van Hieu said the ministry had finished checking the plan on raising the electricity price submitted to the government for consideration. The government will make the final decision on the electricity price increases and the time of application tomorrow, January 16.

Hieu said that the Ministry of Finance’s viewpoint is that electricity prices need to be defined on the basis of market principles and the regulation of the state.

Hieu also said that the pricing schemes have been considered thoroughly based on input production costs, electricity demand and people’s incomes.

“In the government’s meeting tomorrow, we will present all possible schemes with that principle. The final decision will be made by the government at tomorrow’s meeting,” Hieu said.

The Ministry of Finance yesterday had a meeting to discuss measures to implement the $6bil demand stimulus package.

Prior to that, the Ministry of Industry and Trade (MOIT) announced its electricity price increase plan and asked the Ministry of Finance to check it. Under the MOIT’s plan, the electricity price will increase by either 8% or 9.8%. The exact time for the electricity price increase will be decided by the Prime Minister. However, MOIT believes that February would be the most suitable time, or at the end of the first quarter of the year at the latest.

Deputy Minister of Industry and Trade Do Huu Hao asserted that the suggested retail electricity price increase of 9.8%, if approved, would not really affect production and people’s lives.

His ministry has calculated that the price increase will affect some 0.44% of GDP of Vietnam. As such, the price increase is forecast to slow the GDP growth rate in 2009 by just 0.05-0.07%, while it will directly make the consumer price index (CPI) increase by 0.25-0.3%.

The latest electricity price adjustment was made on January 1, 2007 when the average electricity price increased by 7.6%. Meanwhile, the electricity price for the first 100kwh of consumption remained at the previous level of VND550/kwh for all consumers. The wholesale electricity price for rural areas remained at VND390/kwh, while the ceiling retail price for rural areas remained at VND700. However, the sharper price increases have been applied from the 101st kwh of consumption.

Explaining the suggested 8-9.8% price increase, Hao said that the price increase of less than 10% was suggested in order to avoid shocks to consumers. Meanwhile, the price increase should be 20% or 30% as calculated by the Electricity of Vietnam, in order to cover all expenses.

According to Hao, the Ministry of Industry and Trade’s viewpoint is that if petrol and coal prices are stabilised at low levels, the electricity price increase of 8% would be applied. If the coal price increases by 20%, and oil price stays at $50/barrel, the electricity price would increase by 8.1-8.3%. If the coal price increases by 40%, the price increase of nearly 10% would be applied.

An electricity price increase is considered unavoidable in Vietnam, as the electricity price levels are believed to be too low to persuade investors to inject money in the power sector. (VNE)