Officials say price transparency needed

In an online conference organised on the issue by chinhphu.vn, officials from the ministries of Finance and Industry and Trade also argued that there have been significant movement towards the desired objective.

The discussion was held in the context of electricity prices increasing by 7.5% from March 16, and that of petrol going up by VND1,600 per litre recently. The hikes fuelled public concern about a domino effect on the prices of many other essential goods.

Electricity prices, always a contentious issue, have been increased eight times since 2007, but the magnitude of the latest increase as well as the lack of transparency in EVN operations has angered customers, said Ngo Tri Long, former Director of the Institute for Price Studies under the Finance Ministry.

Starting March 16, electricity prices went up to an average of VND1,622.05 per kWh.

However, officials said the increase will help EVN compensate for losses (estimated at about VND8 trillion or US$380.95 million at present) incurred in recent years from exchange rate disparities.

Without the price increase, EVN's losses would exceed VND12 trillion (over $571.42 million) in 2015, they said.

Long said Electricity of Vietnam (EVN) was basing its calculation on output prices, not that of inputs. The country's input prices are lower than other countries in the region, he noted, adding that the national utility has not taken labour productivity and insurance into consideration.

"All operations of the EVN are currently inefficient and customers have to bear the consequences. These shortcomings cause them to disagree with EVN every time it changes its prices."

However, Nguyen Anh Tuan, General Director of Pricing Department under the Ministry of Finance, said that with fluctuations in input prices, the government had only approved the lowest price increase proposed.

To increase electricity prices by 7 to 10%, EVN needs approval from the ministries of Industry and Trade and Finance. For increases of 10% and above, the Prime Minister's go ahead has to be obtained.

Tuan said that EVN has been transparent recently about electricity prices. The hike of 7.5% has taken into account economic growth as well as the impact on inflation and consumer price index (CPI), he said.

He also said that to avoid price hikes in other commodities following the increases in electricity and petrol prices, the Ministry of Finance has sent documents to provinces and cities, calling for tightened price inspections and control.

He said local authorities have also been told to strictly punish those who raise prices unreasonably.

"Curently, petrol prices are managed following market developments with the accommodation of the Government, which closely tracks global market moves," he said.

Tuan further said that the price hike is an opportunity for enterprises to reevaluate their production methods. They should innovate their technologies and upgrade their machines to improve efficiency if production costs are high.

He said the State would maintain subsidies for poor families to the tune of VND153 billion (US$7.19 million) per year.

Vo Van Quyen, head of the Ministry of Industry and Trade's Domestic Market Department, said petrol prices are being fixed in accordance with market mechanisms.

In fact, the prices could have increased by VND3,500 per litre, he said.

However, to avoid a "shocking" increase for customers and enterprises, the ministries of Industry and Trade and Finance had used the petrol price stability fund, he said.

Quyen also said that petrol prices had been reduced by about 40% over fourteen adjustments since July last year, and the recent price increase was only 10%.

"Price adjustments should be considered with long-term perspectives to avoid shocking adjustments, but they should still follow the market."