Gasoline prices a one-way street for local consumers

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Expectations that lower global prices would benefit consumers have been belied


A worker pumps petrol to a motorcycle at a gas station in Hanoi. Vietnam raised retail fuel prices in late March and has left them unchanged since.

When the government decided in March that local petroleum prices will be adjusted in line with movements in world markets, consumers expected to pay more when global prices rose and pay less when they fell.

Now, it seems as though the pricing policy is a one-way street for end users.

The imported price of A92 gasoline, the most popular fuel in Vietnam, has fell by nearly 8 percent in June compared with April, but consumers have had to pay VND21,300 (US$1.04) per liter since March 29.

Petrolimex, the nation's biggest fuel supplier, confirmed the reduction in global prices but refused to disclose the wholesale price at which it bought the fuel from Singapore.

Apart from a fall in world gasoline prices, fuel importers also benefited from a 2-percent increase in the value of Vietnam's dong against the US dollar during April-June period. In addition, import tax for gasoline has stayed at zero percent since January 15.

Petrol companies saw only one cost increase. They were required, in June, to set aside VND400 of every liter of gasoline they sold to the price stabilization fund, up from the previous VND300 per liter.

An expert, who spoke on condition of anonymity, said it was unfair that consumers have to pay more in response to hikes in global gasoline prices but do not benefit when they fall.

"When A92 gasoline imported from Singapore climbed 15.72 percent from February to March, retail prices in Vietnam went up two times with a total increase of 28.4 percent. But when the price declined nearly 8 percent, fuel traders kept silent though they still enjoy a zero tax rate, compared with a 20-30 percent import tariff in other countries," he said.

"This is a very selfish behavior by petroleum firms given that the government doesn't impose any import duty and consumers have suffered two sharp increases in fuel prices."

The Ministry of Finance has said that the tax breaks given to the importers have led to revenue losses of VND10 trillion ($487 million) from February to June.

Price cuts needed

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According to Petrolimex, imported gasoline prices fell 1.27 percent while that of diesel declined 7.78 percent in May compared with April. In response to the drop in diesel prices, the Finance Ministry decided to bring back the import tax. Diesel and kerosene are subject to a 5 percent tax now, while the exemption is still maintained for gasoline.

A ministry official who wished to remain unnamed, told news website VnExpress last week that he was not satisfied with the decision to re-impose import duties and increase the sum of money fuel traders have to contribute to the price stabilization fund when petroleum prices went down in May.

He said the ministry should have lowered retail prices of oil products instead.

"After repeatedly raising fuel prices, it is necessary to cut them if world prices drop. The rule should be: lower prices when oil distributors gain lots of profit; higher prices when they suffer losses.

"If such a rule is implemented, consumers will feel that it is fair and transparent. They would not doubt profit and loss stories told by importers."

Last week, the Finance Ministry ruled out any price cuts in oil products for now. Among the reasons given for the decision was that compared with neighboring countries like China, Laos, and Cambodia, Vietnamese gasoline and diesel prices were lower, by up to 25 percent.

Answering a question about the possibility of price cuts, Dam Thi Huyen, deputy general director of Petrolimex, said the government, not companies, has held the right to raise or lower fuel prices since last August.

She also said she can't confirm whether the company is making profit or not, adding Petrolimex's 42 subsidiaries were compiling data and profit or loss figures would be available on July 31.

Petrolimex has set a profit target of VND648.5 billion ($31.6 million) for 2011, compared to VND924 billion last year.

Meanwhile, an executive of Saigon Petro said, "Global fuel prices have fallen, but we still don't make profit as we have to give VND100 more to the price stabilization fund and pay a commission of VND800-900 per liter to gas stations."

Dang Vinh Sang, general director of Saigon Petro, had said earlier that gas stations were the only ones profiting from falling global oil prices as they were demanding higher commissions.

Sang also said that if his company failed to raise its retail commissions, the outlets would switch to other distributors.

Input costs

Hoang Tuan Anh, a resident of Hanoi, said fuel companies were no longer announcing their input costs so consumers can make a comparison with retail prices.

"Petrolimex had announced its input costs earlier but it has stopped doing so since March 29," he said.

Huyen of Petrolimex responded that the company had suspended its declarations of input costs as its website was being re-designed. She said the firm doesn't have "any intention to keep them confidential."

An expert who wished to remain unnamed said the government should force fuel distributors to announce their input costs because petroleum is an essential item, affecting consumers as well as the society on a large scale.

"It is necessary to adjust management of the fuel market so that local fuel prices are really be in line with world markets," said Le Tham Duong, a lecturer at the Ho Chi Minh City Banking University.

"So far, whenever world oil prices rose, local retail prices have followed suit. But when global prices fell, domestic prices didn't react."

"If we reduce petroleum prices now, it will help ease inflation," he said, adding that sharp increases in fuel prices at the end of March had significantly contributed to push April's inflation up.

The increase in monthly inflation rate in April was 3.32 percent, the fastest since 2008.

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