Traders' Gasoline Price Fixing: A Matter of Time

 

A flexible pricing mechanism is the best condition for enterprises, especially oil importers. Decree 55 backs the business side. Accordingly, oil importers will have the authority to decide the retail price of petroleum products, instead of the Ministry of Finance and the Ministry of Trade. Hence, changes in fuel price will be more frequent and more quickly match world price movement. Article 1, Clause 26 of the decree establishes “the selling of petroleum under the market mechanism, with the State management, and by traders’ decision after paying all taxes and fees as stipulated under the current law.”

 

In the past three years, Vietnam changed the retail price of petroleum products 13 times. However, the adjustments lagged behind world market price trends. If the world oil price changed, it took at least one month on average to have any change in domestic price. In many cases, when Vietnam lifted oil prices, the world rate had fallen, caused serious difficulties for oil traders. The consequences of late oil price adjustments are serious. For example, five late adjustments to the oil retail price (in March 2004, May 2004, October 2004, June 2005 and July 2006) caused big losses to oil trading companies, and the State Treasury had to compensate those losses. “Under the current circumstance, the oil price is very volatile from political, economic, social and natural disaster factors. No one can forecast the exact market trend. If we kept the subsidy policy, enterprises could fall into dangerous situation,” Trade Minister Truong Dinh Tuyen said.

 

According to analysis, if enterprises have the right to set prices and calculate gains and losses, the State Treasury will not have to subsidise oil sales as before. Moreover, the new mechanism helps relevant state agencies avoid painstaking balance of benefits among the state, enterprises and consumers. Instead, they set a fixed tax rate on petroleum products. Importantly, the rights and interests of consumers are protected as the State now focuses on quality and business condition work. Oil traders cannot irrationally increase the price because relevant ministries have various tools to manage competition and control the prices to keep a healthy market. However, several authorities disagreed with these opinions of enterprises. They gave some evidence and forecast that Decree 55 could seriously harm domestic consumers and oil-reliant companies.

 

For a long time, Vietnamese consumers had to use telecom service at sky-high rates because of a monopoly. Experts worry about a similar monopoly in petroleum trading. In Vietnam, although there are 11 oil trading companies, there is no clear background for a healthy competition. Petrolimex is holding some 55 per cent of the petroleum market share, PetroVietnam, Petec and Saigon Petro keep 35 per cent, and the remaining seven companies take 10 per cent. This looks like the telecom market several years ago, which VNPT Group overwhelmingly dominated. A monopolist alliance in petroleum trading is highly possible. Further, regional monopolies are widely seen because of the lax legal system.

 

Many feared oil traders would join hands to arrange prices. Mr Do Gia Pha, Vice Chairman of Vietnam Standard and Consumer Protection Association, said: “In the market mechanism, enterprises fixing the price is suitable. However, gasoline is a sensitive product and an essential input for various production industries. Hence, price self-determination by enterprises is likely to harm consumers. At present, we have already had the Competition Law and a system of competition and anti-monopoly agencies. State competent agencies need to keep track of price movement and the supply-demand situation to prevent inflation of petrol prices.

 

Mr Vo Tri Thanh, Director of the Integration Department under the Central Institute of Economic Management (CIEM), said the floating of the Vietnamese petroleum market is only possible when three conditions are fully satisfied. First, healthy competition must be ensured. Secondly, information must be provided transparently, especially the business results of oil traders. “So far, we only know importing companies complained of business losses and waited for State subsidies, but no one knew the amount of losses,” Thanh said. Thirdly, the State must use import tariffs and VAT, in addition to other management measures, to boost the market.

 

This shows floating the petroleum price will generate more jobs for State management organs. Four days after issuing Decree 55, the Ministry of Trade asked all oil traders to report their retail pumping stations for easier tracking. At the same time, the ministry will increase examinations to prevent speculation, sales limitation or irrational price hikes. Floating the petroleum price is inevitable in the integration process, but the time of application is the most important issue.