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.

By Ngan Anh, Thanh Nien News (The story can be found in the May 18th issue of our print edition, Vietweek) 

- Air India executives to forgo salary

Struggling national carrier Air India on Friday asked its top managers to forgo one month's salary as part of efforts to survive a cash crunch, the company said.

The move comes a week after ordinary staff were told the payment of their salaries would be delayed, prompting a strike threat by 20,000 employees, more than two-thirds of Air India's workforce.

"Executives in the level of general managers and above should voluntarily forgo salary... payable in the month of July 2009," said Air India chairman Arvind Jadhav.

A combination of high fuel prices, fewer passengers and the global financial meltdown have left the airline with an estimated 800 million dollars in losses for the past year and debt of four billion dollars, according to the Centre for Asia Pacific Aviation.

The flagship carrier is expected to follow the example of privately-held Jet Airways and Kingfisher Airlines by increasing fares in line with global oil prices, and has reportedly asked the government for a bailout package.

Vietnamese buying less gas after price hike

Gasoline companies are paying for Monday’s price hike as Ho Chi Minh City residents are switching from motor scooters to bikes and buses to avoid the new costs.
Le Thi Anh Man, deputy general director of Saigon Petro, said the company’s sales had dropped about 30-40 percent since the increase in gasoline prices.
Though deputy director of Petrolimex Region II Company Nguyen Van Canh said his client stations in HCMC were still buying the same amount of gas, he admitted that sales in the provinces, where people are generally poorer, had fallen 15 percent since the price hike.
M., a salesman at a Petrolimex station in Ho Chi Minh City’s District 3, said the number of customers at his station had declined noticeably and that they were buying far lower quantities of gas per trip.
Customers used to buy at least two liters of gas for their motorbikes but now most of them asked for only VND20,000 (US$1.19) worth of gas, he said, adding that some even insisted on one liter exactly (VND19,000), demanding VND1,000 in change.
Going electric
Kieu Tien, a telephone operator at the HCMC information directory, said she just bought a new electric bicycle to ride to the office, even thought the trip already took her 30 minutes by motorbike.
She said it used to cost her VND35,000 to fill up her motorbike every four days but after the gas hike on Monday she had to pay VND53,000 for the same amount of gas.
After riding her electric bike to work for just a short time, Tien said the bike paid for itself with the money she saved from not buying gas.
Many electric bicycle shops along Vo Thi Sau Street in District 3 said their sales had increased since the surge in gas prices.
Shop 152’s sales have jumped 50 percent as the store is now selling eight bikes per day.
Two shops selling Asama brand electric bikes in District 3 and Tan Binh District said they’ve sold out of popular bike models and many customers had paid deposits for bikes that were on order.
Asama is a popular brand from Taiwan.
According to Asama’s Vietnam sales department, the company manufactures 250-300 electric bikes in the country every day, but the number was not enough to meet the needs of the Vietnamese market since the gas hike.
Secondhand bicycles are also selling quicker than before.
Many shops on Bui Huu Nghia Street in Binh Thanh District are refurbishing old bicycles to meet the new demand for gas-free vehicles.
A bike shop owner named Luong said average secondhand bicycles cost only VND250,000, while higher quality Japanese bikes could cost up to VND1 million.
He said his customers were mainly average-income blue-collar workers who didn’t need brand new bikes.
Catching the bus
Nguyen Huu Nhan, deputy head of Rang Dong Bus Cooperative, said more people were now buying monthly bus passes than before.
Phung Dang Hai, general director of the HCMC Transport Cooperative Union, said the number of passengers on the cooperative’s buses had increased by 5-10 percent over the first three days this week.
The cooperative was expecting a 30 percent increase in passenger transport once major road projects were completed, Hai said.
According to the HCMC Public Transport Management and Administration Center, the number of bus passengers in the city generally increased by about 10 percent after every gas price hike.
Source: Tuoi Tre

Vietnam unsure how to shield poor from gas prices

Vietnam's government said Wednesday it would take steps to cushion the impact of a drastic fuel price hike on the country's poor, but released few details of what the steps might include.
On Monday, the government raised the retail price of gasoline 31 per cent, to 19,000 dong (1.13 dollars) per liter. The price rises are painful for poor people dependent on gasoline use, such as taxi drivers and fishermen.
Vietnamese press reported Wednesday that fishermen hurt by higher fuel prices would soon receive additional fuel subsidies from the government. But Deputy Agriculture Minister Nguyen Viet Thang told Deutsche Presse-Agentur, no decision had been made yet.
"We are waiting for a proposal from the Ministry of Finance," Thang said. "I think the rise in the fuel subsidies for the fishermen should be equivalent to the rise of 31 per cent in the price of fuel."
Vietnam's poor are already bearing the brunt of the country's galloping inflation, which topped 27 per cent in the year through June.
To curb inflation, the government tightened credit rules for banks, raised the prime interest rate to 14 per cent, and cut or delayed tens of millions of dollars in spending by government and state-owned enterprises. In March, it froze the prices of key commodities, including gasoline.
The efforts seemed to bear fruit in June, as the monthly inflation rate dropped to 2.2 per cent, from 3.9 per cent in May. But Monday's fuel price hike will filter through into higher inflation this summer, said the International Monetary Fund's Hanoi representative, Benedict Bingham.
"I think they would have been far better off not to have made the commitment back in March to freeze prices, and to let the increase in oil prices continue to feed through in a gradual way," said Bingham. "That would have given households and businesses a better chance to adapt to the situation, rather than being faced with a large shock."
Bingham said the decision to raise prices now "was the right one, but given the magnitude of the adjustment it is important that they put in place some measures to cushion the impact of the fuel price hikes on the poor."
Figures released Wednesday by the Ministry of Planning and Investment estimated the inflation rate through the end of 2008 at 25 per cent, but it was not clear whether gasoline price hikes had been factored in.
The ministry forecast growth of 7.5 per cent in the second half of the year, but with a dramatic trade deficit of 19 billion dollars, over 21 per cent of projected GDP. Vietnam's trade deficit is financed by inflows of billions of dollars in direct foreign investment, as manufacturers confident of future economic growth expand their operations.
The fuel price hikes and high expected inflation have contributed to falling prices on Vietnam's stock exchange. The VNIndex fell 2.8 per cent Wednesday, its fourth straight day of losses.
But Peter Ryder, CEO of Indochina Capital, said the falling market was mainly due to profit taking after a month-long rally that raised the VNIndex some 33 per cent, and not to the fuel price hike.
"People were pissed because the government came out and said a few weeks ago they weren't going to raise prices, and then they went ahead and did it," Ryder said.
"But I'd give kudos to the government for maybe recognizing that the market was going to trade off anyway, so why not throw (higher gas p

Vietnam dong drops in black market on fuel price rise

Heavy demand for dollars pushed the Vietnamese dong down by 4.5 percent in black market deals on Monday, as locals feared a fresh spurt in inflation after the government raised fuel prices by as much as a third.
Offshore forwards trading priced in a deeper fall in the dong in one-year's time compared with levels on Friday.
Selling dollars for dong is unlawful in Vietnam unless conducted by authorised dealers and banks. Many locals however approach gold shops and money changers to illicitly buy dollars.
"People want to safeguard their wealth against expected higher inflation," a black market dollar dealer said.
One dollar was changing hands for 17,500 dong on the black market, 4.5 percent weaker than 16,700 levels earlier in the day before fuel prices were raised.
"The dollar could go up to as much as 18,000 dong this week as people feel the heat from the higher fuel prices," a private currency dealer said.
In the official market, the dong was traded around 16,700 per dollar, within the 2 percent trading band prescribed by the central bank around a mid-point it sets daily. It set the mid point on Monday at 16,500 dong per dollar.
The official market and the black market had nearly converged last week, as the central bank's efforts to clamp down on the black market, intervention to defend the dong and restrictions on banks had led lifted sentiment. The dong had been transacted for as low as 19,000 in the black market in June.
But analysts expect Monday's increase in fuel prices to push Vietnam's annual inflation rate above 30 percent. It hit an annual rate of 26.8 percent in June as food prices soared and has been in double digits for eight consecutive months. Continued...

continued--->>>Vietnam dong drops in black market on fuel price rise Markets Reuters

Vietnam to scrap fuel import tax for airlines

Vietnamese Ministry of Finance has decided to remove import tax levied on aviation fuel to help domestic carriers reduce losses on rising international fuel prices, Vietnam News reported here Saturday.
The tax rate reduction will be effective early next month.
The fuel price, which has gone up about 80 percent so far this year, is an important factor affecting airline's total revenue, said experts here.
Fuel now accounts for 55 to 60 percent of the total cost of flights for domestic carriers, including Vietnam Airlines and Jetstar Pacific.
The ministry cut the import tax rate for aviation fuel from 10 percent to 5 percent four weeks ago.

Singapore braces for knock-on effects of fuel price hike

The fuel price hike in Malaysia is going to bite Singaporeans soon, and hard.

Prices of a range of goods are set to go up in the island as the cost of trucking them in rises, with fresh food topping the list.

Importers said vegetables, eggs and live poultry from Malaysia will cost 10% to 30% more from as early as next week.

The impact will not be limited to produce.

Practically everything imported from Malaysia, including building materials, will also cost more soon.

Even a bus ticket up north is going to be more expensive. Coach companies are already talking about a 25% hike in fares.

They say ticket prices, which are now between $25 (RM60) and $55, will go up soon.

The increases follow Malaysia’s decision to trim subsidies for petrol and diesel and raise pump prices from Thursday.

Overnight, that meant a 78 sen or 40% increase in petrol prices to RM2.78 per litre.

The lorries bringing market produce here run mainly on diesel, which saw the biggest jump in price after the announcement to increase the cost of fuel was made on Wednesday.

The price of diesel was increased by RM1 or 63% to RM2.58 per litre on Thursday.

Wholesalers in Singapore, meanwhile, are bracing for a big hit, and say they will have no choice but to pass on some of the increases to consumers.

Egg exporters in Malacca, for example, say that the three-hour trips to Singapore will now cost about RM11,500 per lorry per month, up from RM7,000.

The result, says Singapore’s Eggs Import and Export Trading Association, is that egg prices could soon leap by 30% in the republic.

Gary Tan, owner of At Thoa Vegetable Wholesaler says: “Since we import so much of our fresh produce from Malaysia, cost increases will definitely be passed down to consumers.”

The vegetable dealer adds: “I have already told them (the customers) to expect it.”

Singapore imported 177,117 tonnes of vegetables (46% of total imports), 61,304 tonnes of chicken (37%) and 60,751 tonnes of eggs (100%) from Malaysia last year. – The Straits Times/Asian News Network