The Rising Cost of Electricity: Consumers Fear the Pinch, Businesses Fear the Fee

Soaring Costs: The Impact of Rising Electricity Prices

As of May 10th, Vietnam Electricity (EVN) has increased electricity retail prices by 4.8%, pushing the average price per kWh above 2,200 VND. This is the second adjustment since 2023, resulting in a cumulative increase of over 17% over three years. The rising costs are causing concerns among businesses and residents alike.

Mr. Tran Van Linh, Chairman of the Board of Thuân Phuoc Seafood and Trading Joint Stock Company, shared with
Tien Phong

that the seafood processing industry heavily relies on electricity, especially for maintaining cold storage facilities. Currently, the company pays an average of 1.5-2 billion VND per month in electricity bills, depending on production volume and actual energy consumption. With the recent price hike, they expect to incur an additional expense of hundreds of millions of VND each month.

“In the context of export market pressures and US tax policy challenges, this price hike feels like a knockout blow to businesses already struggling with production and operations,” said Mr. Linh. The immediate impact is higher production costs, leading to increased product prices and reduced profits. Over time, it will affect the competitiveness of businesses, especially in the current challenging export market.”

Mr. Nguyen Xuan Nhu, director of a mechanical company in Dien Chau, Nghe An, shared that electricity costs account for 10-15% of their product’s price. Mechanical businesses are highly sensitive to electricity price increases as they directly impact production costs. The most concerning aspect is the ripple effect on other input factors such as raw materials, logistics, and operations.

“With the thin profit margin in the mechanical industry, which is only about 5-10%, this price increase could push many businesses into losses if they don’t restructure their operations,” said Mr. Nhu. “Additionally, workers will face higher living expenses, forcing companies to consider wage adjustments and other issues.”

Ms. Nguyen Thu Huong, a resident of Nam Tu Liem, Hanoi, shared that her family of four used to pay around 600,000 – 700,000 VND for electricity. With the 4.8% increase, it might not seem like much, but combined with rising rent and water costs, their fixed expenses are climbing, putting pressure on their household finances.

“It’s worth noting that as we enter the hot season, when electricity demand surges, the prices tend to adjust upwards, resulting in skyrocketing electricity bills. Just in the last two months, our electricity bill has jumped to 1.2 – 1.3 million VND, forcing us to cut back on other expenses like dining out or shopping,” Ms. Huong added.

The Need for Transparent Price Increases

Mr. Vo Quang Lam, EVN’s Deputy General Director, explained that the 4.8% increase is based on regular reviews and complies with the Electricity Law and Decree 72 on electricity price adjustments. Additionally, production and electricity purchase costs have risen, especially with the reduced proportion of cheap electricity sources like hydropower due to weather influences.

However, with EVN’s financial situation for 2024 not yet publicly disclosed, the price hike has raised questions about the company’s efficiency and the control of operational costs in their total additional expense structure.

The Ministry of Industry and Trade’s audit revealed that EVN’s total electricity production cost in 2023 exceeded 528,600 billion VND, equivalent to a price of about 2,088.9 VND/kWh. EVN still carries tens of thousands of billions of VND in accumulated losses from previous years, along with over 18,000 billion VND in unprocessed exchange rate differences.

According to PGS, TS. Nguyen Minh Duë, an expert from the Energy Association, the current electricity price adjustments depend on the average system cost, involving a range of factors such as power generation, transmission, and distribution. Therefore, transparency and fairness are crucial in this complex process.

At present, the production costs for different types of electricity and operational stages in Vietnam are unclear, leading to public skepticism each time EVN adjusts electricity prices.

“While increasing electricity prices is necessary, given that Vietnam’s rates are still lower than those of other countries, the breakdown of cost increases should be communicated clearly. EVN needs to be transparent about this information to allow for public scrutiny and make the price hike more convincing,” said Mr. Duë. He also emphasized the need for the electricity sector to promptly implement the two-part tariff structure, an issue that has been lingering for some time.

Mr. Nguyen Tien Thoa, former Director of the Price Management Department, pointed out that the impact of rising electricity prices would be both direct and indirect, potentially affecting the CPI with a spillover effect of up to 0.34%. Therefore, tight management by relevant agencies is essential.

“Along with price increases, there should be a transparent roadmap, profound reforms in the competitive electricity market, and effective control mechanisms for EVN’s finances,” Mr. Thoa stated. “Otherwise, people and businesses will continue to bear the costs without seeing clear commitments from the supplier.”