Harmony of interests needed to develop petroleum market

Stabilization fund to prevent retail price spike

At the 3rd Congress of the Vietnam Petroleum Association (VINPA) for the 2023-2028 tenure held recently, VINPA proposed solutions to develop a healthy and transparent petroleum market in the new situation.

VINPA has proposed solutions to develop a healthy and transparent petroleum market in the new context

According to Chairman of VINPA Bui Ngoc Bao, 2022 was an abnormal year for the petroleum market as many fuel wholesalers suffered losses when their selling prices at some times were lower than product costs. Therefore, they did not make closing entries and reported their stabilization fund balances negative.

VINPA’s statistics show that, at this time, many businesses report negative fund balances and still have to seek bank loans to use their fund.

Bao said that in previous years, the fund was a tool of the Government to prevent retail price spike when the imported price surged. However, in reality, the fund only compensates partially for the fuel price volatility and is not operating well at all compared to the time it was formed. Therefore, management agencies should consider abandoning this fund - VINPA Chairman recommended.

A roadmap needed to adjust domestic taxes

According to data from the Ministry of Industry and Trade, Vietnam’s average total reserves over the last five years has been just over 370,000 cubic meters a year, equivalent to nine days of net imports and 6.5 days of consumption.

Therefore, if the state does not focus resources on investing in a separate national petroleum reserve system to increase reserves, the supply-demand imbalance in the market like in the fourth quarter of 2022 will likely continue in the near future.

VINPA proposed that the state should only announce the base price (world gasoline price, deduction level of the price stabilization fund), and let petroleum businesses decide the retail prices based on their business expenses. This will contribute to increasing price competition among petroleum businesses.

The State also needs to build a long-term strategy for developing the petroleum market, including decisive policies such as: reserves to ensure energy security, the right to decide selling prices of petroleum businesses, the zero petroleum import tax by 2024 according to the ASEAN Trade in Goods Agreement with the commitment to protect Nghi Son Refinery and Petrochemical Plant for 10 years (2018-2028), develop the system of petrol stations on national highways or newly built roads, managing petroleum quality to minimize environmental pollution, using alternatives to replace fossil fuels, and more.

In addition, the State needs to have a roadmap to increase domestic taxes on petroleum products to ensure state budget revenue, compensating for import tax cuts in accordance with international commitments; at the same time harmonizing interests of the State, businesses and consumers.

According to the roadmap, the Pricing Law 2023 will take effect from July 1, 2024 and will affect the petroleum price management mechanism. Therefore, the petroleum prices will approach closer to market prices, under the State management.