Deputy Prime Minister Le Minh Khai last week signed a decision on a mechanism to adjust the average electricity retail price in Vietnam.

Under the decision, as of May 15, in case the calculated average electricity retail price decreases 1 per cent or more compared to the current average electricity price, Electricity of Vietnam (EVN) is responsible for reducing the price by a corresponding level. If the average electricity selling price needs to be adjusted to increase from 3 to less than 5 per cent compared to the current average price, EVN is allowed to decide to adjust the average price to a corresponding level.

Price movements likely to be affected by inflation landscape, photo Le Toan

However, when the average electricity selling price needs to be adjusted to increase from 5 to less than 10 per cent as compared to the current average price, EVN is allowed to adjust such a price to a corresponding increase only after it has reported the situation to and received approval from the Ministry of Industry and Trade (MoIT).

And in case the average electricity selling price needs to be revised up by 10 per cent or higher as compared to the current average price or it can affect the macroeconomic situation, any price hike will depend on the examination results of the MoIT in combination with other relevant ministries, and the results must be reported to the prime minister.

In January, the MoIT suggested a rise in electricity retail price for this year so that EVN could ensure money flow for its performance and projects.

Despite two electricity price hikes of 3 and 4.5 per cent, respectively, in 2023, EVN is reported to have suffered big losses in the year of around $708 million due to high prices of materials and exchange rate differences. In 2022, the figure was reported to have been around $864 million.

Nguyen Hoang Anh, chairman of the Commission for Management of State Capital at Enterprises said, “If electricity prices fails to be increase, the losses will continue in 2024,” Anh said, adding that the government is considering a mechanism that may allow an electricity price hike of below 5 per cent within every three months.

According to the General Statistics Office, a hike in power prices contributed to an on-year rise of 3.25 per cent in the consumer price index (CPI) last year. Specifically, the price of household electricity rose 4.86 per cent, leading to a 0.16 per cent increase. In Q1 2024, a 9.38 per cent rise in electricity price caused a 0.31 per cent climb in CPI, which climbed 3.77 per cent on-year.

Meanwhile, in a draft decree on minimum wage for contracted labourers in 2024 that it is formulating, the Ministry of Labour, Invalids, and Social Affairs has proposed a 6 per cent climb to Vietnam’s regional minimum wage, effective July 1. The move came after unanimous approval from the National Wage Council.

If the draft decree is adopted, monthly minimum wages will be adjusted in four regions. Region 1 will see wages increase to VND4.96 million ($206), region 2 to VND4.41 million ($184), region 3 to VND3.86 million ($160), and region 4 to VND3.45 million ($144). This increase surpasses the estimated minimum living standard of workers until the end of 2024 by 2 per cent.

Region 1 embraces the urban areas of Hanoi and Ho Chi Minh City; Region 2 consists of the rural areas of these two cities, along with major urban areas in the country such as Can Tho, Danang, and Haiphong; Region 3 covers provincial cities and the districts of Bac Ninh, Bac Giang, and Hai Duong provinces; and Region 4 includes the rest of the country.

According to the Asian Development Bank, Vietnam’s prudent and proactive monetary policy, supported by price controls on petrol, electricity, food, healthcare, and education, should keep inflation in check. The inflation forecasts are maintained at 4 per cent for 2024.