Many experts are urging the government to revise the huge subsidies for coal and power prices for steel and cement manufacturers who have failed to make good use of them.
During his Q&A session at the National Assembly meeting last week, Minister of Finance Vuong Dinh Hue said the power sector last year granted subsidies worth as much as VND2.54 trillion (US$129.1 million) to steel and cement manufacturing industries.
Hue said that the two highly power-consuming industries also enjoyed another incentive which allowed them to buy coal at up to 63% lower than export prices.
The two sectors had consumed more than 11% of Vietnam’s total power production in 2010 at the price of only VND914 a kWh compared to the cost price of VND1,180 a kWh, Hue said, citing audit results and figures from the Ministry of Industry and Trade.
“FDI steel manufacturers have also benefited VND506 billion from the total VND2.54 trillion subsidies granted by the power sector last year,” he said.
He said many foreign businesses had taken advantage of the preferential power price to invest in steel manufacturing, making Vietnam a hub for exporting steel at low costs.
“Our price management policies should aim at curbing this issue,” Hue said.
Also at the NA meeting, Nguyen Huu Quang, permanent member of the NA Committee of Finance and Budget, said he was concerned that steel and coal exports should continue to be encouraged while products’ cost prices did not reflect real input costs.
“It’s obvious that the steel and cement sectors have benefited from the cheap power and coal prices,” Quang was quoted by the Saigon Times Daily as saying.
He said Vietnam currently had to buy power from China at around VND1,400 a kWh, but sold to the cement manufacturing industry at even less than VND1,000 a kWh.
Meanwhile, the cement industry could buy coal at a mere VND1.7 million a ton while the export price was nearly VND3 million, he said.
“Only underprivileged households or low-income earners are eligible for the power preferential price policy to ensure social security,” he said.
He said cement and clinker exports should be limited since export prices were lower than the rate in the domestic market.
“This will benefit only cement manufacturers while those really need government subsidies receive nothing.”
Quang thus demanded that the input costs of the cement and steel making industries should be gradually and appropriately calculated to avoid affecting other related manufacturing sectors.
Earlier in June, the Ministry of Finance proposed increasing the steel exporting tariff to 3%, but the Vietnam Steel Association only agreed to buy power at a higher price rather than pay a higher tax.
Why are subsidies yet to be adjusted?
Regarding the question why the subsidized power and coal prices for the steel and cement industries have yet to be recalculated, Hue told Saigon Times that it was not a simple task and many things should be taken into consideration.
Economic expert Pham Chi Lan said a change would face a lot of hindrances since it was “a matter of history.”
In the last decade, Vietnam has prioritized the development of heavy industries including steel and cement by granting them many incentives.
With the mindset of developing at all costs for the last dozens of years, the country finds it hard to adjust the preferential policies even when certain industries have lost in competition.
“There is a series of obstacles when it comes to the interests of such preferential sectors,” Lan said.
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