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Raising electricity price to attract investors?   2009-02-20 - VietNamNet/TBKTVN

Dr. Vu Dinh Anh, Deputy Head of the Market and Price Research Institute under the Ministry of Finance, said that the argument that Vietnam needs to raise the electricity price to attract investors to the power sector proves to be unconvincing.


Anh said:


Dr. Vu Dinh Anh, Deputy Head of the Market and Price Research Institute under the Ministry of Finance

In principle, when the electricity price increases, this will lead to the prices of other commodities to increase accordingly. However, in the context of the current economic difficulties, I don’t think that the electricity price increase will bring about the increases of other commodities’ prices.


It is because if enterprises raise the sale prices, consumers will not purchase commodities. Therefore, businesses will think of narrowing the production scale, but not think of raising sale prices. For example, with the previously applied electricity prices, people used two refrigerators, and now, with the higher electricity prices, they will use only one instead of two because the products kept in the other refrigerator will not be sold to anyone.


Do you mean that the demand stimulus policy will be influenced?


The electricity price increase has been approved by the Government, so we should not discuss about if the time of price increase and the increase levels are reasonable. We should discuss about the possible impacts of the electricity price increases and about if the explanations by state management agencies are reasonable.


Regarding the policies on demand stimulus, credit increase, and state investment increase, if the policies cannot be implemented well, this will lead to high inflation. And so will be the electricity price increase. If the electricity price increases, the coal price will also rise, and this will lead to a vicious circle. Meanwhile, our goal is to stimulate demand, not to raise prices.


Only by reducing prices we can do the two things: stimulating demand and preventing inflation from returning. However, regrettably, the things that are happening are not going in the same direction.


Economic theories show that once an economy slows down, the demand will decrease and the production will go down too.


If we let the prices increase, this will help increase the output. However, by that time the price index will escalate to new heights, and that is inflation.


One of the reasons the Ministry of Industry and Trade and the Electricity of Vietnam have cited to propose to raise the electricity price is that the price increase will help bring capital for the investment in the power sector. What would you say about that?


The argument proves to be unconvincing. The Government is making every effort to stimulate demand, I mean bringing money to people. It would be too complicated and ineffective if, after bringing money in, it forces people to use that sum of money to pay the high electricity prices.

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