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Why did petrol prices drop only slightly in the country?
Although oil prices in the world have dropped below US$70 per barrel and many hoped domestic petrol prices would follow suit but they haven’t. The question is “why not?”
The world price of oil was US$100.83 per barrel on September 12 and dived below US$77.7 per barrel on October 12. The sharp decrease sparked hopes for a reduction in petrol prices at the pump for the fourth time this year.
Regarding the reduction in petrol prices, Vu Ngoc Hai, President of Management Board of Vietnam Oil and Petrol Corporation affirmed that although market or subsidy mechanisms have been applied, petrol remains under State control. Therefore, it is necessary to report to the executive team under the Inter-Ministry of Trade and Industry if there is any increase or decrease in petrol prices.
In response to correspondents’ question as to the prices of petrol was reduced by VND500 instead of VND2000, Mr Hai gave two reasons. Firstly, the State has to increase the petroleum import tax to compensate enterprises when the world’s oil prices increased while local oil prices remained unchanged in the first months this year. Secondly, some experts had forecast that oil prices were likely to increase by US$200 per barrel in the fourth quarter of this year, so many enterprises imported oil to increase reserves in store. Enterprises that imported oil at that time have suffered great loss. This is the reason why the State has to compensate enterprises before reducing petrol prices. Mr Hai added that if enterprises had not had to repay the State for its previous compensation, they could reduce petrol prices by additional VND1,500-2000.
Sharing the same view with Mr Hai, many economists said that businesses should take into account the Finance Ministry’s decision to ask them to pay for losses during certain periods of time as well as tariff levels imposed on oil and gas products.
According to Nguyen Thanh Huong, deputy head of the Price Management Department under the Finance Ministry, the global market is experiencing a sharp decline in petrol prices, while local businesses are facing increasing pressure as they cannot reduce petrol prices at the moment. If businesses make a profit of VND1,500/litre (excluding fluctuations in petrol prices in the remaining months of this year), it will take them at least six months to pay back losses worth VND3,000 billion for which the State had compensated them before July 21, 2007. If they make any profit, they can repay the State sooner. It retail prices were reduced, it would take more than one year for them to refund the above-mention amount to the State, Ms Huong added.
Reducing or increasing petrol prices depends greatly on the import price. According to Dr. Vu Dinh Anh, Deputy Director of the Price and Market Research Institute under the Ministry of Finance, domestic petrol prices will be set when the import price is announced. “It’s hard to know businesses’ import price as they do not make it public”, Mr Anh said. Therefore, he added, it is difficult to ask them to reduce the price.
According to him, if the import price is about US$100/barrel, the price of petrol is estimated at VND16,000-VND17,000/litre. The current petrol price stands at VND17,500/litre. But, according to this calculation, when the price of oil on the global market falls to US$80/barrel, like at the moment, the domestic petrol price should be lower, he said.
VOV
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