Electricity hike hits industry hard

Wednesday, Apr 03, 2019 08:23

A cement production line at Viet Nam Cement Industry Corporation (VICEM) But Son. Steel and cement producers had to increase the selling prices following power hike. — Photo cafef.vn

Vietnamese manufacturers are set to increase their selling prices following the 8.36 per cent hike in electricity price that launched from March 20.

Viet Nam Cement Industry Corporation (VICEM) But Son announced it would increase the price of its cement by VND30,000 (US$1.29) per tonne immediately after the power price increase.

Do Tien Trinh, VICEM But Son’s general director, said that in addition to the electricity tariff hike of 8.36 per cent, the price of coal sold to cement producers also increased by 2.3 to 5.8 per cent depending on the kind of coals.

The coal price increase came because electricity accounts for 10 per cent of production cost. In addition, the Viet Nam National Coal and Minerals Industry Holding Group (Vinacomin) has not provided enough coal to cement producers, making them import the product at high prices.

Trinh said the firm could not afford to offset the rise in input costs and had to increase retail prices to ensure sustainable production.

VICEM Tam Diep Company also had the same increase in the selling price.

According to Pham Van Minh, the company’s general director, no business wants to increase retail prices, but electricity and coal make up a big portion of input material costs for cement production.

Cong Thanh Cement Joint Stock Company in the central region did not raise its retail prices but is charging distributors VND30,000 more per tonne.

Nguyen Quang Cung, chairman of Viet Nam Cement Association said cement producers were not surprised by the power tariff hike and had been preparing for the change.

Its calculations showed if the electricity price was increased by 8.36 per cent, cement production cost would rise by VND14,000 to VND15,000 per tonne.

Steel producers also said they would increase their selling prices.

SSE Steel Company said it doubled its steel selling price to VND200,000 per tonne, while Thai Nguyen Steel and Iron Corporation (Tisco) increased its selling prices by VND150,000 to VND200,000 per tonnes.

The Viet Nam Steel Association said it was unavoidable for steel producers to raise their prices as power accounted for 8 to 9 per cent of total production costs. In addition, the import prices of iron ore and steel billets were also rising this year, affecting steel production costs.

Nguyen Anh Tuan, head of the Electricity Regulatory Authority of Viet Nam (ERAV) under the Ministry of Industry and Trade (MoIT) told a press meeting last week that there were about 1.4 million manufacturing businesses in Viet Nam who spend on average VND12.39 million per month on electricity. The average increase in their power bills would be VND870,000 a month.

While electricity prices have almost doubled in the last decade, the MoIT said Viet Nam’s electricity prices were 8.1 per cent lower than that of China and India, 18 per cent lower than Laos and 26.5 per cent lower than Indonesia. Even with the latest increase, the prices would only be on par with China and India.

“Viet Nam’s electricity prices are lower than other countries. It is the reason that foreign investors are not interested in investing in electricity projects in the country,” said deputy minister Hoang Quoc Vuong.

However, chief economist of the Bank for Investment and Development of Viet Nam (BIDV) Can Van Luc suggested the Government needs to eliminate cross-subsidising mechanisms for units using electricity.

At present, industrial sectors consuming large amounts of electricity, accounting for 55 per cent of electricity density, such as cement, iron and steel, are being compensated for electricity prices and only subject to the lowest price of 6.8 cents per kWh. Meanwhile, electricity costs households 8.7 cents per kWh.

“Currently, consumers using electricity for domestic use as well as service enterprises are compensating a certain amount for industrial production enterprises – that is unfair. When there is fairness, people and businesses will agree and are willing to pay more reasonable electricity prices,” Luc said. — VNS

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