The newly enacted decree allows oil and petrol trading enterprises to determine their selling prices. With the new decree, the Government will not control petrol prices and define the ceiling selling prices any more; the prices will be decided by distributors after considering the market’s status.

According to the Ministry of Trade, the new decree aims to ensure national energy security and regulate the market to operate close to the world’s market. The new pricing mechanism will give more autonomy to trading enterprises, helping them take initiative in defining their selling price policies.

Under Decision 187, enterprises can define their selling price levels, but the prices must not be 10% higher or lower than the level stipulated by the State (10% for petrol and 5% for other products). The Ministries of Finance and Trade, on behalf of the State, announces the regulating price level applied for every period, based on which, enterprises can define their selling prices.

Businesses get ready for new regulations

The new decree has been applauded by oil and petrol traders and distributors. Bui Ngoc Bao, Deputy Director General of the Vietnam Petroleum Import – Export Company (Petrolimex), said that petrol trading companies had many times asked the Government to let them determine oil and petrol prices themselves, based on the supply and demand basis. The biggest petrol importer and distributor had grown tired of the continuous price and tax adjustments by the Government.

Mr. Bao said that only with the self-determining mechanism in oil and petrol pricing could trading companies take initiative in looking for supply sources and defining selling prices. The price policies will depend on the market, the price fluctuations in the world’s market, tax rates and additional charges. Mr. Bao said that customers would also benefit from the new regulations: they will be able to buy products at low prices when the world’s prices go down and distributors will try to look for supply sources which can provide product at low costs.

“Once businesses can define selling prices themselves, they will compete with each other to attract more customers. The fierce competition will lead to lower selling prices and higher quality of product, from which customers will be the beneficiaries,” said Mr. Bao.

The owner of a general petrol sales agent in Ha Nam Province said that it was always very difficult to get petrol from depots every time the Government adjusted prices as agencies feared speculation. He said that the commission levels given to sales agents always fluctuated in different periods.

“In general, sales agents feel unhappy with every price adjustment. But I hope that the situation will be improved with the new regulations as businesses will be able to take control in supply sources and business plans,” he said.

Worries remain

While businesses feel happy with the new policy, experts keep cautious when talking about the impact of the new policy.

Director of the Department for Trade Policy and International Integration Studies under the Central Institute for Economic Management (CIEM) Vo Tri Thanh said: “Giving the right to determine prices to enterprises is the thing many regional countries have done; however, it is necessary to consider if it is the right time to do this in Vietnam.”

Mr. Thanh said that the price floating should be implemented only when three conditions could be met.

First, fair competitiveness. There is now an imbalance in the market share among oil and petrol traders and distributors. Petrolimex still holds the controlling market share of more than 60% with a wide distribution network nationwide, while the other 40% is being held by other small traders. It is clear that the oil and petrol market is now being controlled by Petrolimex.

Second, information transparency. Enterprises must make public figures related to business performance (profit, loss). Up to now, people just hear petrol importers complaining about losses, and the state has to compensate for the loss, while no one can know for sure how heavy the losses of the companies are.

Third, the State has to effectively regulate the market with taxation schemes (import tax and VAT). Moreover, the State has to apply other measures as well to foster market development and effectively control the operation of enterprises.

“The market proves to be unable to meet the three conditions to be floated,” Mr. Thanh said.

An expert from the Hanoi Socio-Economic Research Institute also said that a market in which many conditions still needed to be perfected like Vietnam would be disorderly if falling into the hands of enterprises.

The expert said that the subsidisation scheme existed in every economy. China has recently decided to float the petrol market, but it still applies other technical measures to control the market. Therefore, according to him, the State should still control the market; otherwise, the market will become uncontrollable, thus badly affecting other branches of the national economy.

MoT and MoF: confident in new mechanism

Worries have been raised that if the State does not set the ceiling price for businesses, it would not be able to curb the price hike, which would severely affect production and business.

However, Minister of Trade (MoT) Truong Dinh Tuyen, who has many times tabled the plan on floating oil and petrol prices, said that a price hike would occur in the short term. In the long term, the State, enterprises and customers will benefit from the new mechanism.

“The market regulated in accordance with market rules will help create firm market development,” he said.

Other experts also share the same view, saying that the market will be more stable once the new mechanism is applied. In the past, the same worries were raised when Vietnam decided to float the gas market, but in reality, the floating has created a more stable gas market.

The Ministry of Finance (MoF) is also optimistic about the impact of the new mechanism. Head of the Price Management Agency under MoF Nguyen Tien Thoa said that it would be fair for enterprises to define their selling prices, while customers would have the right to choose the suitable distributors. However, he has admitted that it is necessary to promulgate comprehensive documents ensuring the smooth operation of the market, including regulations on imposing punishment on violating businesses.

Source: VNN, VNE