The government currently retains the right to set prices for electricity and petroleum. It also requires the coal industry to negotiate prices with the electricity, cement, fertiliser and paper industries, the four sectors that most heavily rely on coal and which together consume the lion's share of coal output in Viet Nam.

These pricing mechanisms would not banned by WTO rules, Thoa said in a recent interview.

"However, the WTO requires Viet Nam to adjust (other pricing mechanisms) to ensure that the economy operates according to market principles, without trade distorting measures," he said.

In 2007, Viet Nam would begin floating cement, steel, and fertiliser prices, allowing market forces to drive the ultimate price, Thoa said. At that time, it would cease subsidising petrol prices and would reduce subsidies on oil.

Only coal used for generating electricity would continue to be subsidised.

Under a government decision issued on Monday (Dec 4), electricity rates would rise 7.6 per cent on Jan 1, with an additional hike planned for January 2008. By 2010, the price of electricity would be determined by market forces.

The January increase in electricity rates was expected by experts to directly drive up consumer price index by 0.25 per cent, and push up production costs of some industries by 1 per cent.

Rock, paper, scissors

The Viet Nam Coal and Mineral Industries Group (Vinacomin) said that coal prices would increase 20 per cent in 2007, an increase that will affect production costs of other industrial products such as paper, fertiliser, and steel.

According to the Viet Nam Pulp and Paper Association, the cost of producing paper would increase 6.5-8 per cent due to the higher cost of electricity. Packaging paper would not be as heavily affected, however, due to more stable prices of both imported and recycled materials.