Vietnam Petrolimex seeks to repay loans at preferential forex rate

Petrolimex, Vietnam’s top petrol distributor, faces major problems after a record first-quarter loss and has sought government permission to repay foreign currency loans at a preferential exchange rate to help it secure fuel supply.

Petrolimex, Vietnam’s top petrol distributor, faces major problems after a record first-quarter loss and has sought government permission to repay foreign currency loans at a preferential exchange rate to help it secure fuel supply, an executive and state media said.

The Hanoi-based, state-run group estimated that it incurred a loss of 2.65 trillion dong ($126.9 million) in the first three months of this year, its biggest quarterly loss ever, Deputy Chief Executive Officer Vuong Thai Dung told Reuters.

The distributor, which controls around 60% of the country’s pumping network, reported a pre-tax profit of 1.21 trillion dong last year.

State oil and gas group Petrovietnam’s subsidiaries Petrovietnam Oil Corp and Petec Trading and Investment Corp faced a combined loss of 780 billion dong, the Saigon Tiep Thi newspaper cited Vu Quang Nam, deputy CEO of Petrovietnam as saying, without explaining reasons for the loss.

An 8.5% devaluation of the dong on Feb. 11 alone resulted in Petrolimex’s loss of 1.85 trillion dong and the group is now in an “ailing situation”, Saigon Tiep Thi said.

Petrolimex has dollar loans worth $1.1 billion, state media has reported. It needs around $6 billion a year to import oil products.

The group gets dollar loans from banks for imported fuel, but the amount it owed on outstanding loans soared in dong terms after the February devaluation, Dung said.

“We borrowed dollars at the former rate and now have to pay at a much higher one,” he said.

The loss also resulted from the group’s task to secure supply, which pushed the firm’s domestic market share up by more than 20%age points to 80% in the first quarter, he said.

“While other distributors may have stopped supplying (fuel) or sold in small amounts over the past few months, we had to keep supply stable to ensure energy safety,” Dung added.

Distributors said they had suffered a loss of around 2,900 dong per litre of petrol in February, which prompted the Finance Ministry to institute a double-digit price hike on Feb. 24 and another increase late last month. These came after Vietnam refrained from price hikes for six months during which time Brent crude had jumped by about a third.

Petrolimex said it was asking for a “special mechanism” from the government under which it would be allowed to fix the foreign exchange rate at a particular point of time before the Feb. 11 devaluation and apply that rate to its outstanding loans.

“We do have cash, but in dong. We cannot buy dollars or pay the banks at the current rate, which is so tough for us,” Dung said.

A company source who declined to be identified by name said it would be difficult for Petrolimex to ensure supply in the coming time given its financial woes.

The group has not restarted buying products from Dung Quat, Vietnam’s only domestic refinery, since the facility resumed production late last week after a 10-day shutdown for equipment checks, the source added.

Vietnam is Asia’s No. 2 importer of gasoline, taking an average 3.8 million tonnes a year (2.5 million barrels a month), a third of Indonesia’s imports. Vietnam also imports about 4.4 million tonnes a year (nearly 3 million barrels a month) of diesel, almost 40% of import demand from top importer Indonesia.

Economists say importers of essential goods, such as oil products and fertiliser, would feel the heat from the devaluation more than others because other importers were already effectively forced to buy dollars from banks above the official one before the devaluation.

Vietnam has been grappling with some of the highest inflation in the region, with the March annual rate hitting 13.89% and the April rate widely expected to exceed 14%.

The Asian Development Bank said on Wednesday Vietnam’s inflation may reach an annual rate of 16% in the third quarter of this year.

The Finance Ministry said in a statement it had used all available financial measures to keep petrol prices unchanged to ease inflationary pressures, but increases were unavoidable.

It had slashed import duties on petrol, diesel, fuel oil and kerosene to zero and requested distributors to maintain operation and supply with no profits. The petrol price stabilisation fund had gone empty, state media quoted distributors as saying.

Dung said the Ministry of Industry and Trade has said it cares about the group’s operation. “But now we have to wait for decisions from the government,” he added. ($1=20,885 dong) – Reuters

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