Vietnam raised retail fuel prices for the first time in three months Monday, including an over one-third surge in diesel rates, as Hanoi risked worsening double-digit inflation to align with climbing global oil prices.
The country's top fuel trader, Petrolimex, said Monday it increased petrol prices by 11.5 percent, and diesel and kerosene by 36.3 percent, the biggest increase since January last year. It last raised prices by more than 15 percent in November.
The Finance Ministry approved the increase after lobbying by fuel retailers who are forced to bear mounting financial losses for selling imported fuel at a loss on the domestic market.
Until its first refinery is completed in about a year's time, Vietnam is almost entirely dependent on imported fuel.
Its predicament is a familiar one in Asia, where many governments subsidise fuel in one way or another.
But crude prices have quandrupled in the past five years, forcing Beijing, Delhi and others to allow domestic prices to rise.
"The policy is a good one to phase out over time, but unfortunately this increase is at a time when Vietnam is suffering inflationary pressure," said Adam McCarty of Mekong Economics consultancy.
Local media quoted Finance Minister Vu Van Ninh as saying the price rise would add about 0.5 percent to inflation, which hit 14.1 percent in January due to higher food and fuel prices.
The number was the highest in 12 years and posed a major test to the government that is pushing faster market reforms while the economy grows at more than 8 percent a year.
And local rates are still lagging, even though Hanoi has moved more quickly over the past year to close the gap.
Petrol prices are up 44 percent since early 2007 and up 70 percent since mid-2005. Crude prices have doubled since mid-2005.
Local media quoted Petrolimex Deputy Director Vuong Thai Dung as saying that at VND13,000 a liter for the 92-octane petrol, the company had a monthly loss of more than $100 million.
The popular 92-octane petrol is now VND14,500 per liter from VND13,000, while diesel and kerosene are VND13,900 per liter, up from VND10,200, Petrolimex said in a statement.
Demand on track
Analysts and traders say the price increase is unlikely to reverse a trend of fast-growing demand for motor fuels, with most of the country's 85 million people dependent on motorbikes for transport or heavier vehicles for their livelihood.
"This will make life much harder for us blue-collar workers as we have to be on the road all the time, we have no other choice but keep on driving. Drive more to make more money," said Hanoi electrician Bui Dinh Nguyen.
But in a country with an average per capita annual income of only $825, the rise will hurt. Nguyen said he spends about VND600,000 a month, or 20 percent of his monthly income of VND3 million, on gasoline for his 100-cc Honda Dream.
Last year oil products imports soared 12 percent to 12.55 million tonnes, while the import bill rose by more than a quarter to $7.7 billion. January oil product imports rose 8.6 percent from a year ago to 1 million tonnes, government data showed.
The government allows state retailers to adjust retail prices to avoid losses but they first need to get approval from the government, which has resisted rises.
From last year, the government stopped subsidies for gasoline and diesel as it moved to liberalise the sector.
An official with Petrolimex told Reuters that its short-term fuel demand could ease following a speculative surge in buying.
"Consumption will calm short-term. Consumers had bought more fuel on rumours of the price increase," said the official.
Longer term demand will be aided by increasing wealth and car ownership, although imports are likely to fall by about a third after the country's first 140,000 barrels per day oil refinery in Dung Quat begins operations next February, analysts have said.
Source: Reuters
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