When Vietnam joins the World Trade Organisation (WTO), the country has to open its oil and petrol market gradually until 2009, when the local market will be completely open. During negotiation process with partners, Vietnam had concessions to keep the important sector. If the country joins WTO late this year, the Vietnamese oil and petrol sector has only two years to increase its competitiveness.
Many but not strong
Vietnam now has nine importers of oil and petrol products with the Vietnam National Petroleum Corporation (Petrolimex Vietnam) playing an important role, accounting for 60 per cent of the import volume of the goods. With 290 general agents and around 9,000 agents and retail shops, the distribution network is considered to be cumbersome, developing widely but not in-depth.
Since 2004, Phan The Rue, permanent deputy minister of trade, expressed a determination to reduce the network by a half. Rue said that the network needed only 150 general agents and 5,000 agents and shops to operate perfectly. Also, it would be easy for authorised agencies to supervise and examine. However, over the past two years, the determination is just determination. The network, in fact, has expanded.
Each year, Vietnam imports around 14 million tonnes of petrol and oil. The import cake is divided for nine importers. Each of them has developed its own distribution network. That is why the distribution network has expanded. An official from Petrolimex Vietnam said that to reduce the distribution network, it is necessary to reduce the number of importers.
In China, there are only two importers while Malaysia has only one. However, the distribution networks in the two countries have operated well. “Strong in quantity but weak in quality, it is very dangerous. Local importers will face difficulties during international integration due to poor competitiveness and limited financial budget. Vietnam should establish a petrol and oil group or merge enterprises into groups to have strong trademarks to survive during international integration,” said the official.
Smuggling and loss compensation
Prices of petrol and oil in the local market are often impacted directly by the world prices. A week ago, world price fluctuated at between US$75 and 78 per barrel, signalling a new price development in the Vietnamese market.
The local petrol and oil sector has not settled the smuggling of petrol and oil cross the border, which has existed for years. If the situation continues when Vietnam joins WTO, the sector will have to surrender.
At a recent conference of the petrol and oil sectors, Tran Van Ta, deputy minister of finance, said that from now to the end of 2006, Vietnam would have to compensate a loss of between VND 8,000 billion and 9,000 billion. The amount would come from the State budget. Part of compensation comes to the losses due to smuggling. Let alone the fact that while the State is exerting efforts to fight smuggling, some enterprises actively smuggle in the form of temporary import and re-export.
Efforts made by authorised agencies and localities over the past year were not enough to fight completely the smuggling of petrol and oil. Nguyen Tien Thoa, deputy head of the Price Management Department of the Ministry of Finance, said that the reason of the smuggling of petrol and oil is price difference. Prices of petrol and oil in Vietnam are between VND 3,000 and 5,000 per litre lower than in Cambodia. To completely fight smuggling, the difference should be removed. Thoa said to that end the local market should be floated in line with the world price.
However, the float of prices of petrol and oil may lead to a boom of price increase of other necessities, resulting in an increase of the consumer price index (CPI), and producing negative impacts on Vietnam’s economic growth.
If these above mentioned shortcomings are not addressed, in the next two years, the local petrol and oil sector’s competitiveness will weaken.
Vietnamese
