Tu said there would be a suitable roadmap for the transition in order to minimise its negative impacts on the country's productivity and cost of living.

The change in policy comes as volatile petrol prices on the world market have shot to record heights, sometimes exceeding US$90 per barrel, placing burdens on the State budget, petroleum importers and local consumers.

According to preliminary statistics from the Ministry of Industry and Trade, the State in the first 10 months of the year had to spend more than VND6tril to keep petroleum prices stable.

The ministry estimated that the cost of stabilisation for the whole year of 2007 could reach roughly VND12tril if the world's petrol price continues to float around $90 per barrel.

"To stabilise petrol prices on the domestic market, petroleum businesses are required to sell at a State-regulated price that is lower than their primary costs. Therefore, the State must compensate businesses for their losses," Tu explained.

Tu said petrol prices on the world market had surged sharply since last year.

For example, crude oil was up 6.2%, from $64.04 to $64.8 per barrel. Prices for A92 gasoline, diesel and mazut rose 8, 4.8 and 10.5%, respectively.

Because of State price controls, there has been no change in the price of diesel and mazut on the domestic market since last year, and the price of gasoline only inched up 1.6% over last year to VND11,300 per litre from VND11,125 in 2006.

Insufficient increase meant that petroleum businesses took losses of roughly VND1,500 per litre for A92 gasoline, VND3,600 for diesel, VND3,500 for mazut and VND4,000 for kerosene.

Tu expressed concern that the country could suffer a shortage of petroleum if the situation continued.

He explained that petrol businesses might soon be unable to continue importing the product after banks refused to extend them further credit due to their failure to repay outstanding loans.

The State compensates petrol businesses for their losses, but the payment is often too slow. Petrol businesses said in the first ten months of the year they received only VND2.3tril, equivalent to only 38% of their real loss.

Tu was also worried about the smuggling of petroleum, since the product's price is lower in Vietnam than in other neighbouring countries.

A litre of A92 gasoline in Vietnam sells at VND11,300 while it goes for VND15,196 in Cambodia and VND15,569 in Laos. China has also increased its petrol retail price recently by 10%.

Tu said the Government had planned to finalise the floating of petrol prices under the market mechanism by the end of this year.

It subsequently had to change the roadmap, due to the volatility of the world market. The Government moved to continue subsidising petroleum because floating the price right now would derail the country's efforts to keep the consumer price index under the GDP growth rate of 8.5%.

Source: Viet Nam News