Electricity prices will go up 7.5 percent to an average of VND1,622.05 per kWh from March 16.
A decision to this effect was approved by Prime Minister Nguyen Tan Dung at a cabinet meeting on Thursday.
The PM, his deputies, and the ministers of Industry and Trade (MoIT), Planning and Investment and Finance agreed on the rise after considering price adjustment options proposed by the MoIT and Electricity of Viet Nam (EVN), the national utility.
The 7.5 percent increase will help EVN compensate for losses (estimated at about VND8 trillion or US$380.95 million at present) incurred in recent years from exchange rate disparities.
Without the price increase, EVN's losses would exceed VND12 trillion (over $571.42 million) in 2015.
The price hike would also help Viet Nam achieve a GDP growth rate of 6.2 percent while reining in inflation rate at about 5 per cent, it was said at the cabinet meeting.
PM Dung asked EVN to improve its business and production efficiency and reduce electricity loss to 8 percent this year from 8.49 percent in 2014; and to raise labour productivity by over 9 percent.
A EVN statement says the previous power price increase of five per cent was applied in August, 2013.
Ho Nghia Dung, Chairman of the Viet Nam Steel Association, told the Nguoi Lao Dong (Labourer) Newspaper that although he could not say exactly how the electricity price increase would affect businesses in general, but it would surely affect the price of 70 per cent of steel produced using the electric arc furnace process – one of two modern ways to make steel.
The impact would depend on each business, but all of them would have to adjust production costs, particularly in the current context of steel supply exceeding demand, he said.
He said steel businesses could invest in new technology to save electricity, but this would take time because it required huge investments.
Economist Le Dang Doanh told the newspaper that the electricity price increase would affect production sectors that used a lot of electricity, like steel, cement and chemicals. The price hike would increase production costs, making it more difficult to businesses to compete with others, he said.
He felt that the price increase should be divided into smaller doses to give the economy more time to adapt.
EVN reported at the meeting that average electricity output this month was 436 million kWh per day, helping meet demand and have a 20 per cent reserve.
In February, total electricity production and purchases by EVN amounted to 9.6 billion kWh, the meeting heard.
VNS
