The government's announcement this week comes as Vietnam aims to fight inflation, which rose to 12.2 percent in January, nearly a two-year high.

Vietnamese Deputy Minister of Industry and Trade Hoang Quoc Vuong said the decision was made after considering rising production costs, the need to keep inflation down and the effect higher electricity prices would have on the standard of living.

The price hike follows a 6.8 percent price increase last year from 2009 rates and an 8.92 percent hike in 2008. Vietnam's current rate of electricity is 5 cents a kilowatt, compared with Cambodia and Thailand, where prices average around 15 cents a kilowatt.

Vietnam's demand for electricity is growing at an estimated rate of 15 percent a year and the country faces frequent power outages and blackouts.

Electricity Vietnam, the national power monopoly known as EVN, said in its year-end report that it had a power shortage estimated at 6 billion kilowatt hours in 2010. It said the shortfall was due mostly to dry weather, which reduced hydropower output.

The utility said it plans to generate 112.6 billion kilowatt-hours of power this year, up 16 percent from 2010. However, it is expecting a shortfall of about 3 billion kilowatt-hours during this year's dry season and said it plans to purchase electricity from China to ease the shortage.

Meanwhile, the government has failed to attract sufficient foreign investment in new power plants.

The European Chamber of Commerce in Vietnam, along with other business groups, had urged the Vietnamese government to raise the price of electricity and encourage investment in the power sector.

"Increasing the price of electricity is not an easy thing to do but it's the only way to guarantee the long-term attractiveness of Vietnam as an investment destination," Matthias Duhn, executive director of the chamber told the Financial Times.

Vietnam's Ministry of Industry says the 2011 target of commissioning new plants with a combined output of 5,400 megawatts is likely not possible. Last year, 10 power projects were scheduled to begin but four have faced delays, reports Industrial Fuels and Power magazine. Of 33 projects under construction, only 11 are on schedule.

The U.S. Energy Information Administration says half of Vietnam's domestic energy consumption comes from oil. Hydropower supplies about 20 percent of Vietnam's power, coal supplies about 18 percent and natural gas accounts for the remainder.

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