Economic concerns on fuel and power price hikes

Experts are worried about higher consumer prices and the jump in production costs for companies after the government's higher electricity and fuel prices bite.

Petrol prices went up on March 11 by VND1,600 a litre while electricity prices are set to rise too. Wages remain largely unchanged, which means less money to spend on consumer goods, setting up conditions for a drop in Vietnam's economic growth.

"Consumers' rights haven't been considered when the both fuel and electricity prices are increased almost at the same time like this," said a spokesman for the Consumer Protection Association. "Not only do consumers have to pay higher electricity bills and more for traveling, they must tighten spending."

The hike in electricity means prices will have to rise, say many companies.

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Representative of Viet Steel Company estimated its electricity bill in 2015 will be VND795bn, an increase of VND55bn compared to last year. One tonne of steel normally costs VND143,000 to produce, but after the price hike, it will cost VND160,000. Other firms in cement and plastic manufacturing industries also worry because electricity accounts for 5 percent of the production cost.

In 2015, Vietnam is committed to multiple international trade pacts, in particular as a member of the Association of Southeast Asian Nations (Asean). It must cut taxes or provide tariff exemptions for thousands of goods under the Asean Trade in Goods Agreement (ATIGA). Domestic firms will have to brace for tough import competition, harder now as they face higher prices for key inputs.

On March 11, the Vietnam National Petroleum Group (Petrolimex), the country’s largest fuel wholesaler, raised the retail price of the fuel blends RON95 and RON92 from VND1,610 a litre to VND17,880 and VND17,280 respectively. The price of the ethanol-mix E5 price increased by VND1,600 per litre to VND16,950. Diesel and kerosene prices rose by VND710 to 15,880 VND and VND16,320 respectively. Mazut costs VND12,760 a litre, up by VND910.

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A few days later, the state-run Vietnam Electricity (EVN) announced a hike by 7.5%, pushing the average price of electricity in Vietnam to VND1,622 a kilowatt hour from March 16.

EVN said it is incurring a loss of VND8 trillion due to exchange rate differences and would suffer a loss of VND12 trillion this year if the price remained unchanged.

According to the government, the price hike in both fuel and electricity will help Vietnam meet its GDP target goal of 6.2% growth. Adversely, it will increase the consumer price index (CPI), which measures inflation, by about 0.46%.

The government has promised to keep the CPI index lower than 5%.