Petroleum Import Price: High or Low

 

In April 2006, Hai Van Consulting and Trading Co. run by Mr. Pham Ngoc Ha, the director, offered an import patch of 200,000 tonnes of petroleum products and diesel oil to Vietnam National Petroleum Corp. (Petrolimex) and Vietnam Air Petrol Co. (Vinapco) at a price much lower than the level these companies are importing. However, after considering the matter, the managers as well as these two companies did not cooperate with Hai Van Consulting and Trading Co. (Hai Van). Thus, Hai Van sent a letter to the Prime Minister to complain that Vietnamese should have bought gasoline at the price of VND8,000 (US$0.5) a litre instead of the current VND11,000. However, with subsidising policies, Vietnamese consumers had lost this chance.

 

On June 2, 2006, Deputy Minister of Trade Phan The Rue explained to the Prime Minister and the public about this matter. Rue said the firm directly transacting with Petrolimex and Vinapco was not Hai Van Consulting and Trading Co. run by Mr. Pham Ngoc Ha, which was authorised by Australian Crucible Mineral (ACM) managed by a Viet Kieu (overseas Vietnamese). ACM introduced Hai Van to act as a representative to sell oil in Vietnam. ACM presented Project Equity Nominees (PEN) to offer the oil batch. PEN was authorised by Project Equity Service Group (PESG).

 

Or in other words, Hai Van Consulting and Trading Co. is the fourth authorised agent to sell petroleum products to Petrolimex and Vinapco. PESG, the owner of offered petroleum products, didn’t engage in direct transaction. In addition, through investigation of the Vietnam Chamber of Commerce in Australia, ACM was only established on November 12, 2004. According to CitiBank Vietnam, PEN is not a client of CitiBank Australia, which has little information about this company. The information about this authorised agent is vague and insufficient.

 

According to Mr. Ha’s offer, ACM required to supply over 200,000 tonnes for specific types of products at a time for 10 years. However, according to the idea of the Inter-ministry of Finance and Trade, this was not in agreement with Asian modes of fuel purchase and Vietnamese requirements.

 

The offer had been vague and not been categorized into specific batches, fuel types, and delivery time. It had not been customized to Vietnamese needs, plans, and storage capability. For example, in June 2006, Petrolimex plans to import 329,512 tonnes of diesel oil, which will be allocated to wholesales oil depots as follows: Nha Be Oil Depot 130,000 tonnes (five tanker calls), Quang Ninh Depot 125,000 tonnes (five calls), Danang Depot 46,512 tonnes (two calls), Quy Nhon Depot 7,500 tonnes (3 calls), Nha Trang Depot 7,500 tonnes (3 calls) and Can Tho Depot 13,000 tonnes (1 call).

 

Nevertheless, to check capacities of the new client, Petrolimex asked to buy 25,000 tonnes of diesel oil for $15 million and Vinapco, 10,000-15,000 tonnes of Jet A1 kerosene for $7-11 million from ACM. But, ACM refused to sell and said “Project Equity Service Group is a wholesale group and will not sell retail”.

 

In payment mode, ACM required unconditional bank guarantees from the buyers with a deferred payment term of 13.5 months. According to the two ministries, such a bank deposit is beyond financial capacity of any oil trading company in Vietnam. Currently, all Vietnamese oil importers are paying in the form of L/C with a deferred payment term of 30 days.

 

Deputy Minister Phan The Rue affirmed: “Mr. Ha said the 13.5-month deferred payment when buying petroleum products of ACM cost US$37.492 less for a tonne is incorrect, explaining that oil importers are mobilising loans from banks with an interest rate of 6.75 per cent a year. Meanwhile, if these enterprises deposit at banks, they only enjoy an interest rate of 1.5 per cent a year, like for a current account, but must pay a guarantee fee rate of 0.8 per cent a year. The 4.6 per cent rate mentioned by Mr. Ha is for termed foreign currency deposit for individual accounts.

 

Thus, the offer was not cheaper US$37.492 a ton but even cost some US$40 more for a tonne because of the combined interest rate of 6.05 per cent a year (6.75 per cent –1.5 per cent + 0.8 per cent). This is exclusive of foreign exchange risks. Enterprises asked Mr. Ha to sell with a deferred payment term of 30 days as conventional practice and reduce prices equivalent to 12.5-month interest value. However, Ha refused.

 

Especially, the gasoline retail price reflected in Mr. Ha’s letter (the A92 gasoline costs less than VND8,000 a litre in April 2006) is incorrect. This rate did not add taxes and business costs (VAT, special consumption tax, petroleum fee, circulation cost, etc.)

 

According to the statistics from the Ministry of Trade, each year, 10 oil importing monopolists import around 15 million tonnes of petroleum products to meet the demand of the national economy. Mr. Bui Ngoc Bao, Deputy General Director of Petrolimex, said, at the current selling price, Petrolimex is incurring a daily loss of VND24 billion (US$1.5 million). Vinapco also claimed loss of up to VND200 billion (US$12.5 million) a year.

According to Mr. Ha, the import tax on most petroleum products is zero but enterprises are claiming big losses. However, the import tax rate on the distillated fuel is some 50 per cent in Cambodia and the US or 41 per cent in Australia but oil traders are still operating profitably. This is certainly unclear. Ha said, PESG lost at all tenders even their bidding price is the lowest. “We cannot explain why,” Ha added.

 

Ha said it is time the Government needed a more suitable policy to let the market decide the price. The market is a fairest arbitrator. The market will eliminate unfairness in tendering.

 

Conclusion: Private enterprises as well as State-owned enterprises usually complain about treatment discriminations. However, dialogues between two sides are vague, insufficient and unpersuasive. Only in a full market economy, enterprises can take full initiative in doing business.