Fuel wholesalers engage in transfer pricing: experts

With many fuel wholesalers paying high commissions to dealers whose stakes or controlling interests are held by the former, instead of cutting retail prices to help consumers, experts are claiming that this is a case of transfer pricing.

The Vietnam National Petroleum Corporation, or Petrolimex, is currently the country’s largest fuel wholesaler, with 55 percent of the fuel retailing market share.

However, this giant wholesaler has repeatedly complained that it is incurring losses from fuel trading.

To date, Petrolimex has around 4,000 dealers throughout the country.

Dealers will enjoy huge profits with the high commissions granted by the wholesaler, who will understandably incur losses doing so, experts said.

However, since Petrolimex holds shares or controlling interest in most of the dealers, part of the latter’s profits will also go to the giant wholesaler, they said.

Vuong Hong Ha, an official from the Business Finance Agency under the Ministry of Finance, said that more inspections and checkups will be required in order to detect whether or not the wholesalers have actually engaged in transfer pricing.

“The wholesalers should not call on the government for help if they lament their losses while paying commissions as high as VND900 a liter,” Ha warned.

However, Ha said he has no idea why wholesalers have hiked their commissions so dramatically.

“In such a particular business as fuel trading, wholesalers are not likely to compete with each other simply by hiking commissions,” Ha explained.

“The Ministries of Finance, Industry, and Trade should look into this case.”

Ha also suggested creating a cap on the commissions wholesalers are allowed to pay their dealers.

Currently, the Ministry of Finance stipulates a fixed business expenses of VND600, including commission, in every liter of fuel.

“Such a rate has become outdated, and should be adjusted accordingly,” he urged.

The rate can be hiked to VND800 a liter, and wholesalers should be allowed to use 40 percent of this, or VND320, for commissions.

“If wholesalers grant commissions greater than this ceiling rate, they will receive sanctions.”

“On the other hand, if wholesalers can negotiate with dealers and reach a lower rate, they will gain profits.”

Meanwhile, the Ministry of Finance has also ordered fuel wholesalers to revise their administrative management, since they have been operating with losses.

The ministry said that in the period between July 1st and August 26th, when the global fuel price edged down and the fuel import tariff remained unchanged, fuel wholesalers still incurred losses, since they had pay commissions as high as VND900 a liter.

If they had kept the low commission rate of VND300 a liter that had been applied at the beginning of this year, they would not have suffered losses, and could have even earned profits, the finance ministry said.

Le Hoang Hai, deputy head of the Business Finance Agency, called for a comprehensive review of the fuel trading sector in order to bring about more transparency.

The wholesalers take it all

Many experts said that while Petrolimex has constantly bemoaned of losses, it has in fact reaped huge profits from distributing fuel to the 2,100 fuel retailing stores which are under its possession around the country.

Petrolimex’s fuel retail stores account for 16 percent of the country’s total stores, and 30 percent of the total volume of fuel sold via the retail channel.

Unlike in fuel distribution via the dealer system, Petrolimex does not have to pay commissions for their retailing stores.

This means that all profits earned from the disparity between import price and retail price when global fuel prices slump will flow into the wholesaler’s pocket, experts concluded.

Tags: Vietnam fuel, Vietnam fuel prices