Thursday, May 24, 2012

Economists slam measly gasoline price cut, import tax  | Look At Vietnam

Economists slam measly gasoline price cut, import tax 

May 24, 2012
 

A worker pumps gasoline to a motorcycle at a gas station in Hanoi. The pump price of A92 gasoline was reduced by VND500 per liter to VND23,300 (US$1.1) on May 9.

Economists have criticized the recent fuel price cuts and the reimposition of the import duty on petroleum products as coming too little, too late.
The pump price of A92 gasoline was reduced by VND500 per liter to VND23,300 (US$1.1) on May 9, and diesel by VND300 to VND21,600.
Import duties, which were scrapped on March 8, have been reinstated at 2 percent on gasoline and diesel and 3 percent on kerosene and fuel oil.
Gasoline prices increased twice this year, in March and April, by a total of VND3,000.
Nguyen Minh Phong of the Hanoi Socioeconomic Research Institute said the reduction came in response to public pressure after a VND900 increase on April 20. Petroleum companies were only losing VND500 per liter at that time.
He said the Ministry of Finance, instead of raising the import tax, should have ordered petroleum companies to make deeper cuts in gasoline prices.
Many firms are having difficulty merely surviving due to a slump in demand and other problems, and could do with bigger price cuts to help reduce costs, he explained.
The government’s tax breaks won’t suffice, he said, referring to a tax relief package of VND29 trillion ($1.4 billion).
Le Dang Doanh, an economist, said: “The meager price cut and import tax increase would make people lose faith (in the government’s policies). Restoring public confidence is much more important than collecting gasoline import taxes.”
The fuel price cuts should have been bigger because global prices have fallen sharply. According to the Vietnam National Petroleum Group, also known as Petrolimex, the gasoline price in Singapore fell to $121.6 per barrel on May 9 from $128.1 on April 20.
Nguyen Tien Thoa, head of the Ministry of Finance’s Price Control Department, said the interests of fuel traders, consumers, and the government come under consideration whenever gasoline prices are adjusted.
According to the tax framework issued by the department, duties on gasoline and diesel can be raised to a maximum of 20 percent and 15 percent.
The tax revenues can be used to stabilize gasoline prices when global prices rise, Thoa said. “The price is forecast to rise this winter when demand increases.”
Thoa said gasoline accounts for 3.2 percent of the basket of goods and services used to calculate the consumer price index. The VND500 price cut would help bring down the CPI by 0.24 percentage point, he said.
But most industries said the reduction is too meager for them to cut their own prices.
Nguyen Manh Hung, chairman of the Vietnam Automobile Transport Association, said: “It is an insignificant reduction. So, transport firms cannot cut their prices.”
Pham Xuan Bang, a Hanoi taxi driver, said: “We (taxi drivers) did not expect the small reduction. It came just to make sure people are not shocked by future hikes.”
Policy issues
Ngo Tri Long, former deputy head of the Market and Price Research Institute, said retail prices are adjusted based on average fuel costs over 30 days.
“The period is too long, failing to precisely reflect changes in the world market. We need to shorten the period, maybe to a week.”
Thoa said: “We are aware of the problems in calculating fuel prices and plan to fix them.”
He said shortening the period to 10 or 20 days will be considered.
A new policy limiting the commissions fuel companies pay retailers could also be introduced, he said, adding that excessive commissions are paid in the hope of expanding market share.
The average price during the 30-day period ending May 8 was VND828 per liter lower than the retail price on that day, he revealed.
Some analysts said the fuel price adjustments are not timely or based on market forces.
In 2009 the government passed a decree stipulating that fuel prices would be based on the market.
Under the decree, businesses are allowed to adjust retail prices and only have to inform the Ministries of Finance and Industry and Trade about it.
But due to spiralling inflation, the government invoked a clause in the decree which says “if the price hike can affect socioeconomic development, the government will adopt measures to stabilize fuel prices” to repeatedly intervene.
With the government only increasing fuel prices when it is no longer able to keep them unchanged, the hikes have come in massive chunks instead of incremental ones, the analysts pointed out.
But other analysts said that, since the gasoline market is monopolistic – with Petrolimex holding some 60 percent of the market – the government should regulate the prices.
The country’s sole refinery Dung Quat contributes too little to the market to help the government stabilize prices when world prices are volatile.
The 6.5-million-ton-per-year refinery, located in the central province of Quang Ngai, meets only 30 percent of the domestic demand. It is seeking to sell a 49 percent stake to foreign investors to raise funds to expand capacity by 54 percent to 10 million tons a year.
This would help it to meet 40-45 percent of demand, according to the Binh Son Refining and Petrochemical Co, which runs the $2.2-billion refinery.
Even with Dung Quat running at full capacity, Vietnam imported 10.65 million tons of oil products in 2011, according to the General Statistics Office.
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