Power price hike forecast to hit industry profits

A retail electricity price hike of 3% could cut pre-tax profits in the steel industry by 15%, the paper industry by 2%, the cement industry by 13%, and the chemical industry by 1%, according to the South Korea-invested Mirae Asset Finance Company.

State-run utility Vietnam Electricity (EVN) last Thursday raised the country’s average retail electricity price by 3%, the first hike since March 2019.

In the 10-year period from 2009-2019, the average retail price of electricity had been raised 10 times at an average of 10% per year, Mirae Asset said in a report released on the same day.

"Electricity accounts for about 3.5% of Vietnam's total consumer price index (CPI) calculation basket, so if its price increases by 3%, it will directly raise the CPI by 0.105%."

The company said the increase in the retail price of electricity may have negative effects on electricity-intensive manufacturing industries such as cement, chemicals, metallurgy (steel), and paper.

It estimated electricity accounts for about 9-10% of the cost of goods for steel producers, which is similar to that of chemical companies.

In the cement sector, electricity costs make up about 14-15% of the cost of goods, except for large enterprises with cement rotary kilns where the figure is about 9-10%.

For paper manufacturing enterprises, it is estimated that electricity costs account for a lower proportion than other industries, at an average of 4-5% of management and sales expenses.

"Therefore, it is easy to see a significant drop in profit when the additional cost of electricity affects the operating efficiency of the business," the report noted.

However, Mirae Asset argued that if companies can pass on increased electricity costs to consumers, it could reduce the impact of increased input costs.

Businesses that directly generate power will not see any benefits in the short term, but electricity distribution firms are expected to cash in. However, in the long term, increased retail electricity prices along with the development of a competitive electricity market will create more favorable conditions for businesses to increase their selling prices, reflecting supply and demand.

Last Friday, EVN raised the country’s average retail electricity price by 3%, the first hike in four years, following approval from the Ministry of Industry and Trades.

According to the ministry, the state-run utility reported a total loss of more than VND26.2 trillion (almost $1.12 billion) last year, mostly due to generation costs. The ministry said the country’s electricity production costs rose 9.27% last year from 2021 to VND2,032 ($0.09) per kWh.

The new average price is now VND1,920 ($0.08) per kilowatt hour, excluding VAT.