Why don’t Vietnamese petrol enterprises import petrol under futures contracts to avoid the losses caused by price fluctuations?

In Vietnam, the petrol retail prices are defined by the State. With the current business scale, no Vietnamese enterprise, including the biggest one, Petrolimex, is capable of joining the futures market.

In principle, Vietnamese enterprises can sign oil and energy futures. For example, they can sign contracts on importing petrol at the fixed price of VND15,000/litre within six months. In case the petrol price surges to VND20,000/litre in six months, they will have to pay VND15,000/litre only and they will make profit with the contract. However, if the price drops to VND10,000/litre in six months, the enterprises would incur the loss of VND5,000/litre.

However, under the current mechanism, petrol is still being imported by state owned enterprises. In case the state owned enterprises makes losses with futures contracts, the enterprises’ leaders will be accused of wasting state owned money.

Why don’t they use price insurance contracts with prices secured, which can also help avoid risks?

Foreign companies accept providing commodity price hedging insurance services only when Vietnam has a full market economy.

For example, petrol importers calculate that they must sell petrol at VND14,000/litre to make profit. However, the state decides that they must sell at VND13,000/litre at maximum. Who will take the responsibility for the VND1,000/litre?

This is the main reason why foreign insurers do not accept the price insurance for Vietnam’s petrol import deals. They only compensate for enterprises’ loss if the loss is caused by the world’s price fluctuation, while not accepting to compensate for the loss caused by the State’s orders.

Only when the state stops interfering with enterprises’ business, can they buy products with prices secured in order to avoid risks.

Why doesn’t Vietnam think of bringing crude oil abroad to be refined so as to get petrol at the lower cost than the current mechanism, under which, crude oil is exported and petrol is imported?

It is not a new idea. Ten years ago, PetroVietnam tried to have crude oil refined in Singapore and China. However, the project was unfeasible due to many reasons. Vietnam will have to pay the fee to carry crude oil from Vietnam to other countries, the expenses for oil refining, and the cost for importing the refined products. Meanwhile, Vietnam’s crude oil output is not stable, raising difficulties for foreign oil refineries in setting up production plans.

You have rejected all the suggested solutions. Do you mean that Vietnamese enterprises have no way to avoid risks?

I cannot comment about the measures taken by other companies. As for Saigon Petro, we have been trying to buy petrol from the suppliers that can offer lowest prices. I don’t think that we have to buy petrol on the two biggest trading floors, NYMEX in New York and IPE in London. We can still use hedging tools in petrol import deals.

As I said before, foreign companies dare not secure Vietnam’s import consignments. Therefore, I think the best way is to import petrol through bidding. Saigon Petro, for example, selects the suppliers from among some 20 bidders.

(Source: TBKTVN)