Vietnam to remove power subsidies from 2009

Viet Nam plans to gradually remove subsidies on electricity from next year as it moves to deregulate the sector, the government said on Wednesday.

"The adjustment of power prices to a market-orientated mechanism is unavoidable," Industry and Trade Minister Vu Huy Hoang said in a government report on the energy sector.

Hoang said top state-run utility group Viet Nam Electricity would submit a plan to the government in the fourth quarter on raising power prices from next year.

He did not provide any specific price changes but said retail prices were below cost, making it difficult for the industry to draw private investment and causing chronic power shortages and regular outages.

Last month Deputy Industry and Trade Minister Bui Xuan Khu said the ministry was considering to raise electricity retail prices by as much as 20% from next year.

Retail power prices now average 862 dong (5 U.S. cents) per kilowatt hour.

Higher prices would help Vietnam Electricity group to raise funds for new power plants. The group has said it wanted to raise $2.5 billion per year to invest in power plants in the next several years to keep up with soaring demand.

Viet Nam, grappling with power shortages, plans to expand power generation capacity by 25% by the end of 2009 to 15,000 megawatts to meet demand that is estimated to grow 15% next year, the government has said.

EVN has said it would buy more electricity from China to bridge the shortfall. The group has been importing power from the giant northern neighbour since 2004 with annual purchases averaging around 3.5 billion kilowatt hours. (Reuters)