VietNamNet Bridge – Electricity of Vietnam (EVN) is planning to raise the retail electricity price by 9.5 percent, the sharpest increase in three years, despite a low inflation rate that is predicted to be below 3 percent.

The new electricity price would be VND1,652.19 per kwh, or VND146.34 per kwh higher than the current price.

This would be the tenth electricity price increase over the last seven years, since the day Vietnam began following the “market economy roadmap” in pricing electricity.

The first four price increases occurred within only two years, but the increases were modest, 5 percent each time. The sharpest and unexpected price increase was the 15.28 percent increase on March 15, 2011. Sixteen months have elapsed since the latest price increase, August 1, 2013.

The electricity price adjustment is part of a government-approved plan to gradually remove subsidization and create a competitive electricity market.

The Prime Minister at the November government meeting requested that the Ministry of Industry and Trade (MOIT) and Ministry of Finance (MOF) submit a plan to raise the electricity price in November.

The EVN plan to raise the electricity price by 9.5 percent needs approval from MOIT to take effect.

The plan, once implemented, would bring additional revenue of VND700 billion, which could be spent on environmental protection projects, a national grid network development in rural area and other expenditure items.

However, while people are not surprised about the price increase, because it is inevitable, they are surprised about the time of the price adjustment.

The Prime Minister’s Decision No 69 stipulates that electricity price adjustments must be based on several  important factors, including exchange rates, input material prices, and supply & demand.

As such, if referring to the decision, EVN would not have any reason to raise the electricity price at the moment. The dong/dollar exchange rate has been stable over the last several years, with the dong having depreciated by only one percent this year.

Regarding the input costs, the crude oil price has dropped sharply by 30 percent, thus making it less costly to generate electricity. Since hydropower plants have been running smoothly, EVN can buy electricity from the plants at low prices.

Meanwhile, the inflation rate is expected to be very low, at less than 3 percent this year.

However, an analyst commented that EVN is making a wise move to raise the electricity now.

According to the General Statistics Office (GSO), if the electricity price increases by 10 percent, this would make the consumer price index (CPI) increase by 0.3 percent.

Therefore, he said, the price increase in the context of low inflation will not upset people’s lives.

Pham Huyen