Petrol industry running on empty

General director of the state-run Vietnam National Petroleum Corporation (Petrolimex), Bui Ngoc Bao warns the petroleum market could soon be in a mess unless state management agencies intervened with suitable remedies.

In his mind a number of problems exist. For starters as of January 7, 2011 “the retail price of each litre of petrol was VND2,000 less than the base price, causing big losses to businesses,” said Bao.

The base price is calculated on the basis of import prices, taxes, fees, commission for sales agents and costs for ports, warehouses and tanks and it must be approved by the Ministry of Finance.

Representatives from petroleum trading firms claim the state will soon be required to subsidise the unregulated petrol market. They argue that a flexible price mechanism and strict supervision from management agencies would help the [petroleum] market avoid any possible collapse when businesses could not withstand tough operating conditions.

Two upward adjustments of the Vietnam dong and the US dollar exchange rate in 2010 made petroleum companies suffer dual losses. For example, Petrolimex incurred losses of over VND700 billion ($35 million). Many other businesses were in the same position.

Petroleum firms then proposed banking authorities give the green light to allow commercial banks to sell them US dollars at an inter-bank exchange rate.

“The whole petroleum supply system would be at risk if any [petroleum trading] firms reduced their sales as Petrolimex currently can only raise its output by 15-20 per cent at most,” Bao said worriedly.

Besides, the price of oil in the world market is on upward trend, currently fluctuating at $92 a barrel. Businesses in the industry forecast oil would exceed $100 per barrel within the year. Therefore, state management agencies need to soon introduce appropriate business mechanisms and tax measures to help the petroleum market avoid risks. – VIR

Tags: Vietnam Petrol industry