Tuesday, January 28 2020


Petrol price stability depends on refining our self-reliance

Update: May, 08/2015 - 08:19
This week, retail petrol prices went up again to VND19,000. — Photo doanhnghiepvn

by Thu Van

In March, retail petrol prices went up by VND1,600 per liter to VND17,280-17,880, ending a series of price cuts that began in early July last year.

This week, it went up again to VND19,000.

Many people might have been shocked and disappointed, given the promise of Finance Minister Dinh Tien Dung when proposing a new environment tax on fuel price to the National Assembly. He had said then that the tax would not affect fuel prices since petrol import taxes would be decreased from 35 per cent to 20 per cent.

His statement would have run true if world prices had stayed the same, instead of continuing to rise from US$65 to US$80 per barrel.

As a net importer of oil products, Viet Nam remains a price-taker in the international petroleum market. Escalating international oil prices have often threatened the stability of oil prices in the domestic market.

In response, the Government established the petroleum price stabilisation fund in 2009. It was seen as a financial tool to avoid sudden increase in prices of petroleum products, keep a lid on inflation and maintain macro-economic stability.

But is it using the stabilisation fund as a long term, effective tool for fuel price management?

Many people have raised questions about its transparency, but let's put that aside for a while and focus on the nature and modus operandi of the fund.

Basically, it is people's money; part of what they pay for fuel goes to the fund. For instance, if the fuel retail price is VND21,000 per litre, VND1,000 of that goes to the fund. The extra VND1,000 per litre that customers pay now is to be used to keep domestic prices stable when world fuel prices increase suddenly.

So what it really means is that the Government is performing a financial management sleight of hand on behalf of the consumers, using their own money to buttress possible shocks. And we have to take into account administrative and other expenses incurred in managing the fund.

Over the past two months that world prices have been rising, Viet Nam has almost used up the contingency fund. In all likelihood, the fund's coffers have to be replenished by another advance payment that consumers make via the surcharge in retail fuel prices.

How can this be an effective management tool that will benefit people in the long run?

Some people have recommended that an independent institution manages the fund, instead of the ministries of finance and industry and trade, but there is no real guarantee that this will prove to be a turnaround.

In the long run, Vietnamese consumers can be shielded best from severe impacts of world fuel price fluctuations only if the country can stand on its own feet. This need not be a far-fetched solution, although it can take a long time to implement it.

Viet Nam's crude oil reserves are the second largest in East Asia (after China), at 4.4 billion barrels, or 630 million tonnes.

Data published by the General Department of Customs show that Viet Nam imported around 8.6 million tonnes of fuel in 2014.

We have to compare this with the nation's annual crude exports of US$8.2 billion. It is the lack of domestic refining capacity that keeps the country as a price-taker in the international market for petrol, jet fuel and related downstream products.

The Dung Quat refinery, which is currently the country's only such facility, produces enough to meet an average of 30 per cent of the nation's annual demand.

A new project, the US$6.2 billion Nghi Son refinery in the northern province of Thanh Hoa, is currently under construction and is scheduled to begin operating in 2017. It is expected to process more than 200,000 barrels of crude per day, bringing total domestic refinery capacity up to 70 per cent of anticipated demand.

It is obvious that Viet Nam has to focus on raising its refinery capacity and effectiveness, and take better advantage of its fuel reserves. However, the sector's managers have to balance the pros and cons of refinery projects as they strive to meet domestic demand.

Hopefully, we will have savvy managers who are able to maintain some aloofness from international markets so that domestic consumers can enjoy their daily rides without worrying too much about sudden price hikes, and the hidden costs that seem to drive them. — VNS

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