Ministries hesitant to approve price increases, petroleum market chaotic

The petroleum market is still not at peace, despite the strong announcements by the management agencies that the supply is not short and the threats that the filling stations which sell petrol in dribs and drabs will have licenses revoked.

On Sunday, February 20, Petrolimex, which holds 60 percent of the petroleum distribution market share, held an unscheduled press conference, just to send a message that the petroleum supply is profuse and that no need for people to worry about the shortage. A representative of the enterprise said that in January and the first 15 days of February, the volume of petroleum products it imported was 22 percent higher than the volume of the same period of the last year.

The person,who knows most thoroughly about the petroleum supply is Nguyen Hoai Giang, General Director of Binh Son petrochemical company, the distributor of Dung Quat oil refinery’s petroleum products. He laughed loudly when talking with VietNamNet’s Vietnam Economic Forum: “Enterprises are still scrambling for purchasing products from us. The refinery is now running at 105 percent of the designed capacity. We have just sold 20,000 tons more to PV Oil”.

Dang Vinh Sang, General Director of SaigonPetro, a big client of Dung Quat, has affirmed that the company still sells 100,000 cubic meters of petroleum a month to the market, the same volume as in previous days. 30 percent of SaigonPetro’s products come from Dung Quat.

Deputy Minister of Industry and Trade Nguyen Cam Tu told Vietnam Economic Forum on February 22 that the total supply of petroleum has increased by 17 percent.

However, Tu reminded that the 17 percent increase has been “divided equally” to 12 enterprises. Some enterprises have to increase their sales, while others just keep small sales in dribs and drabs. Meanwhile, some Petrolimex’ sales agents have a sale volume 11 times higher than ordinary levels.

It is clear that there exists a big gap between the figures and the actual supply on the market.

A representative of an enterprise said frankly, “I know that some enterprises have stopped taking products for sale”.

It is obvious that Petrolimex, which bears the task of providing enough products for society, has to increase its sales, and other enterprises do not want to boost sales at this moment because the more they sell, the bigger the losses they incur.

Why does the supply get stuck?

Analysts have pointed out that the speculation and the decreasing sales are unavoidable. As enterprises foresee that petrol prices will increase, they have decided to keep products in store and not to sell.

Petroleum distributors have asked for the permission from management agencies to increase the petrol price for 3000 dong per liter. And if the proposal is approved, petroleum sales agents would lose three million dong per cubic metre if they sell petrol right now, when the prices are still low. The loss would be tens of millions of dong for a 16 cubic meter tank.

Analysts have also pointed out that the key problem behind the current chaos is the pricing. Ministries still have not made decision on whether to allow petrol distributors to raise retail prices. Sales agents well understand that the more they sell, the bigger loss they will incur. Therefore, even though management agencies order them to continue sales, they still have ignored the instructions.

Even petroleum enterprises admitted that the commission for sales agents now is very low, at 100 dong per liter of petrol sold. Meanwhile, in order to cover expenses on transport fee and electricity bill, the commission should be at least 400 dong per liter. Therefore, it is understandable why sales agents have to “break laws” to ensure their profits.

An expert has commented that the petroleum market has become even more complicated than previously before when the subsidization scheme existed. The government can also control 12 key distributors, but it cannot control all the 10,000 retail points.

It is very difficult to predict when the petroleum prices will increase. After the sharp devaluation of the local currency by 9.3 percent, it seems that the Ministry of Finance finds it hard to make the decision to allow the petroleum prices to increase at this moment, because the move may make it more difficult to curb inflation. Especially, the electricity price will increase as of March 1. – Vietnamnet

Tags: Vietnam petrol, Vietnam Petrol prices