With nationwide power cuts

Vietnam considers cost of electricity

By Ben Bland, Financial Times Blog, 14 February 2011



With nationwide power cuts set to begin on Tuesday, the Vietnamese government is considering a record increase in the price of electricity. The government has kept domestic electricity prices low in order to ensure that the rural masses can benefit from the country’s rapid development. But by subsidising power, the state power monopoly has little money to invest in maintaining the national grid and adding new capacity. Vietnam, like many other developing nations, is having a hard time meeting high demand for power. The result has been ever more frequent power cuts over recent years, making life tough for many businesses and ordinary Vietnamese – last week nine friends died of asphyxia in Haiphong, northern Vietnam, after starting a car inside a house to provide music for their lunar New Year party during a power cut. Reports in the state media today said that the Ministry of Industry and Trade had proposed that domestic electricity prices rise by 15 per cent, a record hike, from 1,000 Vietnam dong ($0.05) per kilowatt hour (kWh).



The European Chamber of Commerce in Vietnam is one of the many business groups that has lobbied the government to increase the price of electricity and spur further investment in the power sector. Matthias Dühn, executive director of the chamber, welcome the proposed increase but urged the government to do more. He told beyondbrics: “Increasing the price of electricity is not an easy thing to do but it’s the only way to guarantee the long term attractiveness of Vietnam as an investment destination. This is a step in the right direction but it’s not enough: A 15 per cent increase on 5 cents per kWh is too low to catch up with the average prices in Cambodia and Thailand which are are around 15c per kWh.”



Despite its impressive average growth rate of seven per cent per annum over the last decade, investors (both domestic and foreign) have become increasingly concerned about the scale of the challenges facing Vietnam, from macro-economic instability to poor infrastructure. After Friday’s long-delayed devaluation of the currency, any further signs that the government is starting to take action to retool the economy will be welcomed by investors. However, as Dühn noted, most believe there is a long way to go.
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