Grumbles in Vietnam as power prices shoot up

HANOI: Vietnam on Tuesday raised electricity prices by 15 percent as data showed inflation soared further in February, prompting complaints from some small businesses struggling to cope.

The higher electricity rates follow an 18 percent increase in petrol prices last week in the wake of a currency devaluation that pushed up the cost of imported fuel.

The Communist country is already grappling with double-digit inflation and the price hikes have stirred discontent among some Vietnamese.

"The increase in the electricity price by 15 percent is too much," said Do Thi Lan, 64, who sells tea from a makeshift stand beside the road in Hanoi.

"I think now I have to cut unnecessary spending and reduce the use of electricity," she said.

Pham Minh Hai, a furniture-maker, said he might have to lay off workers because he cannot pass on the higher costs to customers.

"The petrol price has been raised. Now electricity. I don't know whether my clients would accept it if I add another 15 percent to my product prices," said Hai.

Rising consumer prices are emerging as a top concern for policymakers in Asia, particularly with oil prices shooting up on world markets. Vietnam is among the countries in the region which subsidise petrol prices.

In Vietnam inflation reached 12.31 percent year-on-year last month, according to official data, far higher than neighbouring states. It has accelerated every month since August 2010.

An official from the Ministry of Industry and Trade, who declined to be identified, confirmed the electricity price rise had taken effect Tuesday in line with an announcement last week.

The government says the increase is needed to attract investment for new power plants to meet growing power demand.

The move is "a step in the right direction", said Matthias Duhn, executive director of the European Chamber of Commerce in Vietnam (Eurocham).

But he said a separate price which the monopoly distributor Electricity of Vietnam pays to producers is still far below neighbouring countries, giving foreign investors no incentive to enter the sector.

Eurocham has cited estimates that Vietnam needs $40 billion-$50 billion worth of investment in energy infrastructure over the next five to 10 years.

Demand for power is expected to increase by at least 16 percent in 2011, the government says.

Vietnam draws more than one-third of its electricity from hydropower, which leaves the system vulnerable to droughts, leading to blackouts.

Duhn said some of his members endure daily power cuts, which come without adequate warning.

Pledging that fighting inflation is its top priority, the government has unveiled measures to rein in prices and stabilise the economy, which is facing a complicated mix of challenges. These include a struggling currency and a trade deficit that reached an estimated $12.4 billion last year.

Among the measures, Prime Minister Nguyen Tan Dung vowed to cut state spending by 10 percent in an effort to control prices.

The State Bank of Vietnam on Tuesday issued a directive that confirmed authorities want to control the growth in credit, or loans, to below 20 percent.

The central bank also wants lenders to limit the proportion of loans for "non-productive sectors", notably property and stocks.

It also confirmed its intention to strictly control the gold trade and take measures to reduce the prevalence of dollars in the economy.

Many Vietnamese hold dollars and gold -- rather than their own currency -- as a safe haven.