Corporate profits continue to erode
On November 9, Vietnam Electricity Group (EVN) announced an increase in the average electricity price by 4.5%, equivalent to 86.4 VND/kWh, from 1,920.3732 VND/kWh to 2,006.79 VND/kWh, excluding value added tax. This is the second time the electricity price has increased this year, after the increase in early May with a 3% increase. According to EVN's calculations, after the electricity price is adjusted, each month for customers using level 1 (0 - 50 kWh), the electricity bill will increase by 3,900 VND; level 2 (51 - 100 kWh) will increase by 7,900 VND; level 3 (101 - 200 kWh) will increase by 17,200 VND; level 4 (201 - 300 kWh) will increase by 28,900 VND; Level 5 (301 - 400 kWh) increases by 42,000 VND and level 6 (from 401 kWh and up) increases by 55,600 VND.
Rising electricity prices may affect consumer prices at the end of the year
For the manufacturing, business and service sectors, the additional amount depends on the usage and rate of electricity usage at peak and off-peak times. Of which, the service sector (547,000 customers) will see an increase of about VND230,000/month in electricity bills; the production group (over 1.9 million customers) will pay an additional VND423,000/month; and administrative and career customers (681,000 customers) will pay an additional VND90,000/month. EVN assesses that this electricity price adjustment will ensure that poor households and policy families are not significantly affected.
Although poor households are not greatly affected, middle-income and high-income households, and especially manufacturing and business enterprises, have to pay significantly higher electricity bills. Mr. Do Phuoc Tong, Chairman of Duy Khanh Mechanical Company and Chairman of the Ho Chi Minh City Mechanical and Electrical Association, expressed concern about the second increase in electricity prices this year, especially in the last quarter of the year.
According to him, manufacturing enterprises, especially in industries that consume a lot of electricity such as mechanics, iron and steel, etc., will have more headaches in calculating and measuring costs in the near future. For old orders that have agreed on prices, they accept the increased costs, but for new orders, they do not dare to increase prices because of the huge competitive pressure. According to Mr. Tong's calculations, with an average increase in electricity prices of 4.5%, the input costs of mechanical manufacturing enterprises will increase by about 1% in the near future.
"We produce for export abroad and sell to foreign enterprises in Vietnam. If we increase the selling price, they will buy goods from neighboring countries such as China immediately. With strong investment in improving machinery, the mechanical industry in Ho Chi Minh City has participated in the world supply chain. However, customers have many choices, so for enterprises, the biggest headache is competing on price. That is the reason why costs increase but certainly do not dare to increase selling prices, because we have to follow world prices and market prices. Increasing selling prices will lose customers. Therefore, in the short term, the modest profits of enterprises will continue to shrink," said Mr. Tong.
Mr. Tong's mood is also the mood of most businesses in the current period, even the super small businesses. Ms. Nguyen Thai Trang - D&T Fashion Company, specializing in designing and sewing middle-aged fashion clothes - admitted that in the current difficult period, having a few more wholesale customers is too difficult. Since the beginning of October, the company has launched a discount policy to stimulate demand during the shopping season. With a 4.5% increase, the company's accountant estimates that next month's electricity bill could increase by more than 6 million VND.
Ms. Thai Trang wondered: "We don't know how much the electricity company will increase in the future, but with the additional amount that we estimate, it is almost like "feeding" an additional worker's salary, while the company is considering reducing staff at each stage to reduce costs. No matter what, the company cannot pass on this cost to consumers and accept it. Therefore, the increase in electricity prices can erode a significant portion of the company's profits."
Control "electricity price gouging"
Although businesses say they do not dare to increase prices, according to experts, prices of some items will be slightly affected because it falls at the end of the year, when production and consumption demand increases, leading to increased demand for electricity.
Dr. Nguyen Quoc Viet, Deputy Director of the Institute for Economic and Policy Research, commented that the manufacturing industry, especially the production of fast-moving consumer goods, will be significantly affected in terms of production costs when electricity prices increase in the last quarter of the year, affecting production costs and selling prices. In addition, industries with high electricity consumption will be under great pressure. Citing data calculated by Mirae Asset in May, when the average electricity price increased by 3%, Dr. Nguyen Quoc Viet informed that at that time, it was estimated that electricity costs accounted for about 9-10% of the cost of goods sold for steel manufacturing enterprises, which was also equivalent to that of enterprises in the chemical industry. The cement industry increased by 14%, the paper industry increased by 5%... Now that the average electricity price has increased by 4.5%, it is certain that industries with high electricity consumption will continue to be affected.
This expert commented: "This situation will certainly put pressure on year-end inflation when the consumer price index depends heavily on production and business. In particular, consumer goods and catering activities for Tet will be affected because the end of the year is near and production is increasing. In addition, the acceleration of disbursement, urgent public investment, and increased exports will lead to increased electricity consumption. Therefore, no matter what, manufacturing enterprises in the last months of the year must be very skillful to make a little profit, otherwise they will end up with another difficult year."
Sharing the same view, Associate Professor, Dr. Dinh Trong Thinh, an economic and financial expert, affirmed that production and consumption costs will certainly be affected to some extent because electricity prices affect all goods and services, but the level of impact is not large. He analyzed that with a 4.5% increase in average electricity prices, production costs will increase by less than 0.2% of the total cost of electricity use. This increase is insignificant enough to affect prices.
However, Mr. Thinh noted that it is necessary to control prices well to avoid the situation of "price gouging according to electricity". The price of goods at the end of the year often increases due to preparation for Lunar New Year, and businesses often stock up on goods for production. If not strictly controlled, there may be a situation of taking advantage of the increase in electricity to increase the price of goods, leading to price overlap, increase on increase.
"Price management and market management agencies must monitor more closely and regularly in the coming time. On the macro side, inflation until early November is still under good control, around 3.2%, and the value of the dong is also increasing well compared to the USD. Meanwhile, there is only 1.5 months left until the year-end summary, too short a time to say that electricity prices affect the consumer price index (CPI). It is forecasted that this year, the CPI will be below the National Assembly's permitted threshold of 4.5%," Associate Professor, Dr. Dinh Trong Thinh emphasized.
Enhanced "shockproof" solution
Citing the General Statistics Office's assessment of the impact of electricity price increases on the consumer price index, Mr. Tran Viet Hoa, Director of the Electricity Regulatory Authority (Ministry of Industry and Trade), said that the CPI could increase by 0.035% after the electricity price increase. According to Mr. Hoa, with the recent price increase, the increased electricity price is still below the cost of electricity production in 2023. This electricity price increase has not yet offset the cost of electricity production and business, in addition, the exchange rate difference of more than VND 14,000 billion from last year is also not calculated in the electricity price.
Everyone understands the problem of negative cash flow in the electricity industry, but increasing prices at the end of the year, when the economy is in difficulty, exports are declining, the number of businesses leaving the market is increasing, purchasing power is weak, income is decreasing, etc., will create a lot of pressure for both people and businesses.
However, Dr. Nguyen Quoc Viet commented that the electricity industry was quite "clever" in choosing the time to increase prices right at the beginning of winter, the demand for electricity for cooling in the northern and central regions may decrease. Accordingly, the electricity bill for each household during this period will increase, but it will not feel like a strong increase due to the decrease in electricity consumption. He said that in the context of the economy still facing many difficulties and challenges, it is very necessary to reasonably calculate the increase to be enough for EVN to ensure production and business activities, reinvestment, and to restore and develop production and business of enterprises and people's lives, ensuring the harmony of interests of the state, people and enterprises.
However, Mr. Viet also admitted that most businesses are facing difficulties, suffering losses, and stagnant production due to a decrease in domestic and global purchasing power, so increasing electricity prices at this time indirectly creates additional burdens. Therefore, there needs to be a "shock-proof" solution for businesses by facilitating access to loans, reducing administrative procedures, etc. On the EVN side, this expert suggested that expenses such as regular expenses, investment expenses, labor regime expenses, etc. need to be calculated to balance financial resources. Because in the long run, business losses cannot and should not be put on electricity prices.
In the future, the trend of increasing production input prices will remain very high due to unfavorable developments from geopolitical tensions in the world, which will continue to affect exchange rate stability. At that time, the pressure to ensure the inflation target of below 4.5% that the National Assembly has just approved for 2024 may be challenged. That is not to mention the factors of salary reform applied from the middle of next year. "In reality, basic service prices have been under pressure to increase but have been suppressed to ensure macroeconomic stability in 2023 at 3.2 - 3.3%. With this price increase, inflationary pressure will last until next year," Dr. Nguyen Quoc Viet noted.
Dr. Nguyen Duc Do, Deputy Director of the Institute of Finance and Economics (Academy of Finance), commented that the target of controlling the average CPI growth rate for the whole year at about 4.5% is still under control. Therefore, the impact of the electricity price increase on the CPI is not worth worrying about. However, the increase in input costs of manufacturing enterprises due to the increase in electricity prices has pushed up the anxiety at the end of the year. This is something that management agencies must anticipate.
"In fact, the two-time increase in electricity prices is also implied. Audit results show that the cost of electricity production increased sharply last year and this year has also increased, although not as much as last year. Therefore, the increase in electricity prices is inevitable. Macroeconomic management by dividing the number of increases into smaller ones to avoid shock, but it is impossible to "anti-shock" for all. Fortunately, at this time, world oil prices are on a downward trend, and the special consumption tax on this item is also recommended to continue to be reduced by 50%... These factors are expected to help balance the costs of businesses as well as consumers," Mr. Do analyzed.
Increasing electricity prices helps EVN earn an additional 3,200 billion VND
EVN representative said that this electricity price increase will help the group increase revenue by about 3,200 billion VND from now until the end of the year, helping to reduce some of the difficulties in 2023. Previously, when electricity prices increased in early May, EVN earned an additional 8,000 billion VND this year. However, these two price increases have not yet offset the losses from last year to now. By the end of August, EVN's estimated loss is expected to reach more than 28,700 billion VND. If the total loss of 26,500 billion VND in 2022 (excluding exchange rate differences) and 8 months of 2023 is calculated, EVN's total loss will be over 55,000 billion VND.
In 2023, according to EVN, several input parameters affect costs, including hydropower output - a cheap source of electricity - decreasing by 17 billion kWh. Prices of input fuels remain high, such as imported coal increasing by 186% compared to 2020; domestic coal increasing by nearly 30 - 46% compared to 2021 prices. Oil prices also increased by 18% compared to 2021, especially foreign exchange rates increased by nearly 4%, directly affecting EVN's electricity purchase costs and electricity prices.
EVN builds electricity generation price framework for wind and solar energy sources
EVN has just issued a document requesting the Electricity Trading Company (EPTC) to calculate and develop a price framework for electricity generation of wind and solar power plants according to the method of developing a price framework for electricity generation of the Ministry of Industry and Trade. Previously, EVN received Document No. 7695 dated November 2 of the Ministry of Industry and Trade on developing a price framework for electricity generation applicable to all types of power plants.
EVN requests EPTC to calculate and develop a price framework for electricity generation (consultants can be hired if necessary) for solar power plants (ground-mounted solar power, floating solar power), wind power plants (onshore wind power, offshore wind power and offshore wind power) in accordance with Circular No. 19/2023 dated November 1, 2023 of the Ministry of Industry and Trade stipulating the method for developing a price framework for electricity generation of wind and solar power plants. Regarding the method, the price calculation formula is based on related parameters (investment costs, fixed operation and maintenance, interest rates, electricity delivery, etc.).
Regarding the method of building a power generation price framework based on parameters of installed capacity, economic life of the project, debt repayment period, equity/loan ratio, profit rate, standard distribution coefficient corresponding to expected electricity for wind power; investment rate parameters, foreign currency loan ratio, operation and maintenance cost ratio and parameters for calculating average electricity output for many years of standard wind and solar power plants are selected based on data from consulting organizations to ensure universality and update of data in the world, instead of using past data of power plants; domestic currency loan interest rates and foreign currency loan interest rates are determined according to statistical data of credit institutions.
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