Economists slam PetroVietnam's tax break proposal for Dung Quat refinery

By Nguyen Nga-Tran Tam, Thanh Nien News

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Dung Quat refinery in the central province of Quang Ngai. Photo: Hien Cu Dung Quat refinery in the central province of Quang Ngai. Photo: Hien Cu


State-owned oil giant PetroVietnam has provoked strong criticism with a new petition demanding for tax breaks for the country's sole refinery Dung Quat, an underperforming business project that many economists believe does not deserve more support.
Speaking with Thanh Nien, they said it is time the government stopped protecting the US$5-billion refinery whose operation has been relying heavily on tax breaks since 2008.
If PetroVietnam cannot keep Dung Quat running, it might as well shut it down, they said. 
In a letter sent to the government last week, PetroVietnam asked for lower tariffs on crude oil that the refinery's operator, Binh Son Refining and Petrochemical Company, has to import for production.
Since crude imports are taxed at 20 percent, Dung Quat's products cannot compete with oil products imported tax-free imported from ASEAN countries, and South Korean products which are taxed at 10 percent, it said.
PetroVietnam believed that tax breaks will allow Binh Son to lower its prices, and convince local distributors to place new orders. Its buyers reportedly have reduced purchasing, putting Dung Quat at risk of shutting down in two or three months.
Last year PetroVietnam made similar pleas twice and managed to convince the Ministry of Finance to reduce tariffs to 20 percent from 35 percent for Dung Quat.
One of the critics of the latest proposal, economist Pham Chi Lan told Thanh Nien if the government keeps giving state-owned PetroVietnam what it wants, it will be unfair to foreign investors. 
"When Dung Quat no longer makes profits, it has to accept either bankruptcy or closure as its fate," she said. 
Lan warned that the ineffective project will eat into the state budget. 
Robert Tran, a consultant from advisory firm Robenny Corporation, agreed that the government cannot continue protecting loss-making state enterprises. 
Dung Quat should be treated just like any other business, meaning that it should be closed if it keeps making losses, he said.
Singapore-based economist Phan Minh Ngoc said the fact that Binh Son cannot compete against cheap imports only reflects its poor performance and lack of vision. 
The project should have anticipated the effects of free trade agreements, instead of complaining about them, he said, adding that the government should let it face "market punishments."
News website VnExpress reported that the corporate tax rate for Binh Son is 10 percent, instead of 20 percent for most companies. 
The operator posted a cumulative loss of over VND1 trillion ($44.79 million) from 2010 to 2014. Without a policy that allowed it to pay less import duties, that figure would have been a staggering VND27.6 trillion, according to figures released by PetroVietnam last year.

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