Raising tariff for  attracting investors

Immediately after the Ministry of Industry and Trade decided to increase the average tariff by 6.08%, there are many concerns that such a tariff increase may have negative impacts on the lives of people, causing inflation.

However, from the perspectives of some economists, it should be impartial in judging the electricity tariff because a low tariff level has been maintained for a long time. The adjustment of tariff in line with the competitive market, based on input prices, with a moderate increase, aims to both attract investments in the power industry and help businesses balance and save production.

Attracting investments in wind power

According to Dr. Le Dang Doanh, an economist and the former Director of Central Institute for Economic Management (CIEM), an increase in electricity tariff will somewhat affect other industries, increase costs of businesses, especially steel and cement industries. However, low tariff is likely to push investors away from investing in the power sector, consequently power shortage will probably occur. Our challenge now is how to enhance the openness, transparency and independent supervision of electricity tariff.

Increasing electricity tariff will create opportunities for investors to participate in the electricity market, especially for wind and solar power investors. The success of promotion of renewable energy sources is subject to whether the electricity trading mechanism is flexible and marketable or not. Over the past few years, Vietnam has maintained a low electricity tariff mechanism which gives an edge to only coal fired thermal power source, whereas solar, biomass power with higher production costs but more sustainable and safer is traded at low price, causing a lot of difficulties for Vietnam to balance generation sources.

According to Prof. Nguyen Mai, Chairman of the Association of Foreign Investment Enterprises: "In fact, the current investment rate of coal fired thermal power is supposedly lower than that of new technologies. However, the emission to the environment of coal fired thermal power during operation leads to its lower efficiency and higher consolidated costs. Consequently, the increase of electricity tariff under the competitive market mechanism will meet the target of attracting new wind and solar power investors".

Increasing electricity tariff will help new investors enter the electricity market.

No impacts on inflation

Specialist Nguyen Minh Duc from Legal Department of the Chamber of Commerce and Industry of Vietnam (VCCI) said that during the recent three years from the latest electricity tariff increase in March 2015, the inflation rate was 0.6%, 4.74% and 4% in 2015, 2016 and 2017, respectively. So it is obviously seen that the electricity tariff have increased at a rate lower than the average increase rate of other commodities in the economy.

The tariff increase in December 2017 is likely to have certain effects on businesses producing goods in service of consumer demand on the occasion of Lunar New Year. However, the tariff increase at this moment has been considered in line with the objective of curbing inflation at 4% in 2017. The Government determines to increase the electricity tariff at this time when the targeted inflation rate at less than 4% is certainly achieved.

According to Dr. Nguyen Minh Phong, an economist: "The electricity tariff increase at this moment is appropriate, because it has not increased over nearly three years while prices of inputs such as coal, oil, exchange rates all have been changed. The increase in electricity tariff to offset the increase in input prices is reasonable and this increase rate is just equivalent to the inflation rate”.

In reality, the tariff increase of 6.08% plus 10% of VAT may lead to an increase of the consumer price index and inflation rate from now until the Lunar New Year festival. However, the current inflation rate is estimated at 4% for the whole year and the present consumer price index is still stable.

  • 07/12/2017 11:20
  • evn.com.vn