Government decree pushes gas companies against the wall

Nearly 100 gas trading firms are worried about their fate after September 30, 2010. They fear that they will be dissolved because they cannot meet the requirements stipulated in Decree 107 on gas trading management. Many of the soon-to-be affected trading firms believe the decree has many problems.

Nguyen Van Vien, Director of Thang Long Trade and Development Company in Thai Nguyen province, told local newspaper VnMedia that Decree 107 will bring “imminent death” to gas trading firms.

Vien said the decree requires gas trading firms to have depots with a capacity to hold 800 cubic meters of gas, a requirement that only a few companies can meet. He pointed out that firms do not need to have such big depots, because they do not have that many customers. Currently, most trading firms, especially in rural and remote areas like Thai Nguyen and Tuyen Quang, are only using depots with a capacity of 30-60 cubic meters.

The decree also stipulates that every gas trading firm must have at least 300,000 gas tanks. According to Vien, very few companies have that many gas tanks. In many cases, it would take ten small and medium sized trading companies to gather their gas tanks together for there to be enough for 300,000 tanks.

Even the established gas trading firms, which have been operating for 6-7 years, only have 200,000 gas tanks.

Vien stated that it is unfeasible to require trading companies to get up to 300,000 gas tanks within nine months. Within nine months, no factory would be able to produce enough gas tanks to assist enterprises reach 300,000 gas tanks. Vien’s company now only has 100,000 gas tanks, despite great efforts to reach the required number.

Nguyen Van Tien, Director of Thang Long Gas, shares Vien’s view and said his company now only has a depot with a capacity of 60-100 cubic meters. After two years in business, the company only has some 100,000 gas tanks. Tien’s company currently does not need to have more gas tanks to run its business. Thang Long gas is now mainly distributing gas in the Ha Tay area. Since the number of clients in the area is not large, the company thinks it does not need to have that many gas tanks.

Ly Tran Dung, General Director of Ngon Lua Than Company agrees, saying that in order to meet the requirements stipulated in the Decree 107, his company will have to spend 100 billion dong more to upgrade the depot and increase the number of gas tanks. However, even when the company has the depot with the required capacity and has enough gas tanks, these things will be left idle because the company does not have that many gas users.

“I believe that many gas trading firms would get dissolved after September 30, when the decree officially takes effect, because they cannot meet the overly strict requirements set by the decree,” Dung said. “If so, gas trading firms will not be able to pay bank debts. An estimated 70 percent of the capital used by gas trading firms comes from banks.”

What can be done with the companies that cannot meet the new requirements? It is difficult to answer this question. Firms could potentially merge to become bigger firms, but analysts point out that there could be many difficulties during mergers.

According to Vien, only five gas trading firms can meet the requirements stipulated by the decree, meaning that the majority of enterprises will go bankrupt. This may lead to an oligopoly in the gas market, where the five big firms collude with each other to push prices up.

Lawyer Vu Xuan Tien, Chairman of the Member Council of VFAM Vietnam, a consultancy firm, believes that the decree is unreasonable, and that it needs to be adjusted to serve the needs of the gas market. – Vnmedia

Tags: Vietnam gas, Vietnam Gas prices