Big Profits but Determined Not to Cut Prices

 

 So-called losses

The state-owned Vietnam National Petroleum Corp (Petrolimex), the biggest petrol distributor in Vietnam, has announced that it had made net profit of VND200 billion (US$11.83 million) in the first six months this year.

 

Early, Petrolimex continuously moaned over its debt of nearly VND2 trillion of the government’s advance for their previous losses but the corporation had paid VND1.2 trillion to the state budget in the first six months this year. Petrolimex plans to refund the rest of VND800 billion the state budget prior to October this year.

 

Last year, despite the global petrol price fluctuations, Petrolimex still had revenue of VND98 trillion, up 395 on year. The group made net profit of 250 billion in 2008 thanks to the increase in its fourth quarter’s profit. The corporation paid taxes of VND16.1 trillion last year, up 25 percent on yearn and surpassing 4 percent of the full-year target.

 

While explaining the slow petrol price reduction upon the global price fall, an official of Petrolimex said, “Petrol is not immediately bought and sold right after price fluctuations but is regulated in line with a firm mechanism. In the first half this year, Petrolimex sold around 3 million metric tonnes of petrol to the domestic market, down 6 percent on year.

 

However, in the first half of June alone, Petrolimex’s petrol sales hit 338,000 metric tonnes, up 14 percent compared to the earlier 15-day period. Petrol sales in the second quarter this year were imported since the first quarter, and part of which was bought via separated contracts. Similarly, petrol sales in the first quarter were bought in the forth quarter last year, when the world gasoline price was set at between US$40/barrel and US$42/barrel.

 

Petrolimex was lucky and had advantages to sell petrol, which was imported in the first quarter this year with lower prices, in the second quarter with higher prices. The corporation has also enjoyed five consecutive gasoline price hikes and four oil price hikes since the beginning of the second quarter. These have proven that petrol traders’ losses are deceitful and that petrol trading is not as gloomy as traders often complain.

 

Deputy Minister of Finance Tran Van Hieu said at the meeting that if the world petrol prices continue rising for 20 days but no petrol traders register to cut petrol retail prices, the Ministry will send an official document to ask them for price reduction.

Addressing the press conference, Mr Tran Van Hieu affirmed that the ministry has not yet received any petrol price cut proposals by petrol traders. Mr Hieu added that in line with the current petrol price regulation mechanism, if the global oil price falls or rises continuously for 20 years, domestic petrol price reduction should be applied. The world crude oil price has continuously decreased for 14 days as of July 15.

 

He also explained that, the mechanism is flexible and is in line with signals of the finished petrol products’ prices regardless of the world crude oil prices because sometimes the global crude oil price falls but the prices of petrol products stay unchanged or decrease slightly. The world average petrol price from June 30 to July 13 was down between 0.8 percent and 8.6 percent against the average in June depending on different types while the global crude oil price fell more rapidly. The price of mazut fell inconsiderably.

 

The Ministry of Finance said that in the near term, the Ministries of Finance, and Industry and Trade will regulate the petrol import tariffs in accordance with announce table; ask petrol traders to continue to refund VND1,000/litre of petrol sales to the government’s advance; request them to continue extract part of petrol revenues for the petrol price stabilization fund, and ask them to cut the domestic petrol retail prices is possible.

 

Mr Hieu reiterated that even though the petrol prices have been regulated in accordance with the market-oriented mechanism since July 1, 2007, enterprises must undertake price stabilization task upon the government’s demand, which had led to the losses of VND4.04 trillion between 2007 and 2008. The Ministry of Finance had advanced VND4.038 trillion to traders who have to date refunded 38 percent of the total advance to the state budget and will have to continue to refund the rest of VND2.508 trillion to the government.

 

Recently, the Dung Quat oil refinery pumped out over 5,000 cubic metres of gasoline A92 to the domestic market. Mr Hieu said that the refinery’s production has just met only 10 percent of the domestic market’s demand and the country has to import the rest and continue to endure price fluctuation pressures. Even though the refinery can satisfy 30 percent of the demand, the country may not benefit from lower prices.

 

“Price regulation must follow the marker rules and does not allow selling at low price upon high buying rates while it should base o supply-demand balance, corporate auditing and tax payment”, Hieu said.

 

The deputy minister said the Ministry of Industry and Trade is making the draft amendment of Decree No. 55 on the basis that enterprises are allowed to themselves adjust the retail prices within a permitted scope regardless of asking for permission from ministries and agencies. The government will just make interference in special cases upon the rocketing world rates. “Decree No. 55 will be amended in accordance with conditions in Vietnam at the expense of the prices in the U.S. or the UK once we still heavily depend imports”, Mr Hieu emphasized.

The Ministries of Finance, and Industry and Trade will propose the government to amend Decree No. 55/2007/ND-CP on petrol trading on the basis of allowing enterprises to themselves decide the retail prices within 10 percent. If petrol prices are up between 10 percent and 155, they will be compensated by the petrol price stabilization fund to ensure stable prices. However, if the prices are up over 15 percent, the government will make interference.

 

Even though the global petrol price falls, the petrol prices in Vietnam are still lower than those in some regional countries while petrol trading has not yet got rid of hard time.

 

Regarding the information about Petrolimex’s net profit of VND200 billion, I do not think that traders’ losses are deceitful. Petrolimex’s petrol trading activities include temporary import and re-export and domestic petrol trading. The corporation made profit of over VND392 billion from temporary petrol import and re-export and had loss of over VND100 billion from domestic trading; therefore, its net profit of VND200 billion belongs to its petrol trading not to domestic petrol trading as an article said.

 

I propose the government should ask petrol trading enterprises to make public all their spending on transportation, store and input prices as clear as possible. All fees relating to prices like soft spending and asset spending must be announced in official statistics. Basing on input costs of these goods, the government should speculate how many petrol traders to make profits. If they do not make public input costs, they may easily to adjust profit of between VND100 and VND200 per litre of petrol, and the last figures will be very huge when adding it to a large volume of petrol sales.

Petrol traders always moan about losses of some thousands of Vietnam dong per litre of petrol sales upon the world price rise and then ask for price hikes but in fact they still make profit. These have proven that people’s worry is appropriate. Public opinions have not yet had access to accurate sources of information. The Ministry of Finance should be responsible to make clear explanations about this issue as well as strictly supervise minimal production and trading costs by traders and make them public as soon as possible.

The government must strictly control inputs of this goods, including import prices, import tariffs, transportation and store fees, which will help state agencies estimate loss and profit of traders.

 

The commission payment is not the real competition when Petrolimex owns over 60 percent of the Vietnamese petrol market, which has led to a fact that petrol traders agree to apply the same retail price even though the country has applied the market-oriented petrol price regulation mechanism.

One of elements to minimize the monopoly in petrol trading is more favourable business conditions to attract more companies to join the market. At present, under the Decree No. 22, any companies want to start petrol trading must has special ports as part of Vietnam’s international port system in order to ensure receiving petrol import tankers other petrol transportation vehicles with a minimal capacity of 7,000 tonnes in addition to store with a minimal storage capacity of 15,000 cubic metres each, which hinder enterprises to join. In my opinion, we should make a looser mechanism that allows firms who do not have stores and special ports and o ink long-term port hiring contracts with store trading firms and mangers of those ports. If so, Vietnam will have more private companies trading in the domestic petrol market. Obviously, only when Petrolimex’s market share decreases remarkably to 30 percent, the country will enjoy really competitive petrol prices.