Prime Minister Nguyen Tan Dung has approved a 15.28 per cent increase in electricity prices. The new electricity tariff will be applied from the beginning of next month.
Prices will rise to VND1,220 per kWh, VND160 higher than the current VND1,058 per kWh.
Households which have monthly power consumption of less than 50kWh will have to pay an additional VND5,000 per bill. Those who have consumption of less than 100kWh will be charged an additional VND21,000 per month. Households consuming 200kWh will pay VND53,000 more while those with over 400kWh of electricity use will pay an extra VND100,000 to 135,000 a month on current prices.
Deputy minister of Industry and Trade (MOIT) Hoang Quoc Vuong said the increase took into account escalating input costs, the need to constrain inflation and the effect the rise would have on people's living standards.
|Power prices will increase by 15.28 per cent next month. This picture shows a worker reinforcing cables to reduce electricity losses on the 110kV Hoa Binh- Son La line|
The Government would adopt measures to support poor and low-income people, while promoting production and increased competitiveness following the increase.
Pham Manh Thang, head of the MoIT's Electrical Distribution and Control Department said Viet Nam's electricity prices were the lowest in the Southeast Asian region.
"If the country continues to maintain current prices, it would not be able to attract investors into the sector," Thang said, adding that Viet Nam could face an electricity shortfall in the next five years.
He said the increasing electricity prices could encourage businesses and people to save power.
Head of the ministry's Energy Department Ta Van Huong, said the ministry considered the price suitable for the long-term development of the electricity market.
"The ratcheting up of the electricity price should help the industry to mobilise investment for new power plants to meet the country's burgeoning power demands," Huong said.
Economist Le Dang Doanh, said the price was the highest increase yet under a roadmap to establish a competitive electricity market laid out by the Prime Minister, but was in fact lower than the proposal made by the ministry, Electricity of Viet Nam and Viet Nam Energy Association.
Doanh said the increase has taken into account the views of all parties-EVN, businesses and people, as well as effects on the market.
The latest increase follows a 6.8 per cent rise over 2009 last year, and an 8.92 percent hike in 2008.
He said the adjustment could cause difficulties for production and make some items, including steel and cement more expensive.
"Enterprises and people should save electricity to improve power supply," he said.
Pham Chi Lan, a senior economic expert, said the increase would affect production and people despite the Government's weighing up of the consequences of the price rise.
"Several factors, including higher electricity prices combined with the recent 9.3 per cent devaluation of the dong, and a possible increase in fuel prices are going to have some major effects," Lan said.
She said the Government should give more consideration to the effects the increase would have on the prices of other products, helping mitigate their effect on more vulnerable, low-income earners.
And added that the Government should take measures to protect the poor. "In addition, the sector should abolish the monopoly in the electricity market and bring a competitive electricity market into operation to attract more investment," she said.
The MoIT has asked relevant agencies to calculate the effect of the price changes on different income groups and regions.
Vice chairman of the Viet Nam Steel Association Nguyen Tien Nghi, said the steel sector, along with others, could be affected by the change.
Nghi said businesses would have to consider reducing production costs by improving technologies and management ability.
A representative of the Viet Nam Cement Association said the increase was unavoidable, and would undoubtedly lead to increased cement prices. The sector's businesses would have to struggle to find energy saving solutions.
It was forecast that the country will lack over two billion kWh of electricity this dry season because of severe water shortages. Electricity productivity this year is expected to total 117.6 billion kWh.