Fuel price hike not the only choice: experts

August 13, 2012 | 12:59
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Import tax cut and the suspension of stabilisation fund feeding will help preventing local retail prices of fuel from rising too much, said experts.


Economist Le Dang Doanh told Tuoi Tre that the fuel price increase plan proposed by local enterprises can be fully justified by force majeure reasons.

“As world oil prices have risen sharply in the past ten days, plus the abrupt halt of Dung Quat - the sole refinery of Vietnam, Vietnam has to increase fuel import to meet up with local demand.”

“However, in the current context, the price hike should be considered carefully at a reasonable rate.”

"I think an increase up to VND1,400 per litre as proposed by the local wholesalers is too much, which will certainly cause a widespread shock over local business communities and the people.”

“If such a price hike is realized, there will be a new round of price increases of consumer goods as a direct consequence," Doanh said.

Local enterprises now are suffering from too much pressure from the recent electricity price increase, so a fresh petroleum price increase will certainly cause a negative impact on their business operations.

For local consumers whose purchasing power is depleting, such a fuel price increase as proposed by the petroleum wholesalers will make a majority of fixed-income earners to apply a stricter austerity plan in their daily spending.

Doanh told Tuoi Tre that the Ministry of Finance should consider sharing a part of budget revenues with the people and local business communities by reducing import tariffs on petroleum products.

The import tax rates for petroleum products are about 10-12 per cent.

In many previous gasoline price adjustments, the ministry has adopted plans to raise taxes and cut the retail prices at the same time.

So, what should be materialized now is a tax cut combined with a slight price increase, Doanh added.

Economist Ngo Tri Long, while sharing Doanh’s opinions, told Tuoi Tre that there are many kind of taxes imposed on every liter of petroleum products.

Specifically, it includes 12 per cent import tax, 10 per cent value-added tax, 10 per cent special consumption tax and a VND1,000 environmental tax. They are translated to around VND6,000 worth of tax and fee in total.

In addition, Long said that the suspension of feeding the oil stabilization fund can be a solution that should be applied.

"The stabilization fund should only be deducted when world oil prices are low and petroleum enterprises are operating with a profit," Long said.

Petroleum wholesalers should reduce the profit margins to share the burden with people. “They must know how to allocate profits to cover losses, and should not always concentrate on profits even if the customers are in a stage of difficulty.”

"Despite any world price fluctuation, the wholesalers always enjoy a profit of VND300 per litre of petroleum product sold. With the daily supply of tens of millions of liters for the local market, the profits could be up to tens of billions," Long said.

Fuel pricing mechanism needs revision

As a rule, fuel prices will be adjusted three days after local petroleum wholesalers submitted their price hike plans to the Ministry of Finance.

However, experts said such price regulatory mechanism cannot be decided by the wholesalers. Moreover, the state should have another solution to share the burden with the people and businesses, instead of continuously increasing oil prices in the context of the economic slowdown.

Economist Ngo Tri Long suggested the Ministry of Finance should review the mechanism.

"It go against the local price law since the law states that for any products offered by state monopolies, like petroleum products, they should exclusively price by relevant state agencies," Long said.

The petroleum market of Vietnam is still dominated by state monopolies, led by the National Petroleum Corp (Petrolimex) with about 60 per cent of the market shares, so any rules applied for a competitive market will be useless.

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