Written by: Ahmed Abdel Salam
As of November 1, domestic gasoline prices in Vietnam dropped sharply across all categories, coinciding with a 2% reduction in the average retail electricity price, in a move that is the first of its kind in nearly two decades, excluding temporary reductions during the COVID-19 pandemic.
Gasoline Price Reduction Details
The special consumption tax on gasoline was canceled, leading to a decrease in the price of E5 RON 92 gasoline by 1,800 Vietnamese dong per liter to reach 24,220 dong/liter, and a decrease in E10 RON 95 gasoline by 1,580 dong/liter to record 24,150 dong/liter, while the prices of other petroleum products remained unchanged.
Historic Electricity Price Cut
The average retail electricity price was adjusted downward by 2% to reach 2,159.9037 dong/kWh (excluding VAT). This is the first time the average electricity price has been reduced in about 20 years, reflecting a shift in the pricing mechanism towards greater flexibility.
Impact on Inflation and Production Costs
According to Nguyen Thien Thua, President of the Vietnam Valuation Association, the electricity reduction could lead to a decrease in the Consumer Price Index (CPI) by 0.0662% in the first round and 0.1324% in the second round. Steel production costs are expected to decrease by 0.12%, cement by 0.3%, and textiles by 0.23%. Additionally, a household consuming 400 kWh per month will save approximately 20,000 dong on electricity bills.
The Consumer Price Index recorded an increase of 4.52% during the first nine months, and the government aims to keep inflation at 4.5% for the current year. Supporting measures include providing budget advances to the fuel price stabilization fund, reducing taxes on gasoline and diesel, and continuing the 2% VAT reduction until the end of the year.
Expert Opinions and Flexible Pricing Mechanisms
Dr. Nguyen Minh Phong, a member of the Economic Advisory Council, believes that reducing energy costs stimulates investment, boosts business confidence, and eases the burden on citizens. He noted that the decrease in electricity prices reflects a change in the pricing mechanism to become more flexible and reflect market principles of rising and falling.
Experts praised the decision of Vietnam Electricity (EVN) to reduce prices after overcoming financial difficulties, rather than waiting for future increases. They called for a more flexible adjustment mechanism and shorter procedures to activate price adjustment proposals sooner, while monitoring the prices of goods and services and encouraging companies to share the benefits of cost reductions with consumers.
