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Fuel price proposal won’t change much, experts say
A newly proposed fuel price mechanism will not change retail pricing schemes much as a strong monopoly still dominates the market and the price-setting formula is still too rigid, said experts this week.
The Finance, Industry and Trade ministries have drafted a proposed decree, which stipulates that retailers would have to set their prices in line with a “base price.” The draft states that the government, which currently sets unilateral fuel retail prices across the board, would only interfere during abnormal price fluctuations.
The government would calculate the base price by adding the CIF (cost, insurance, freight), a global rate set in Singapore, to the estimated costs of operation expenses, taxes and other fees and payments and a profit margin.
If the base price rises more than 3 percent above current retail prices, traders would be allowed to raise their prices by half the respective increase in the base price. Two consecutive price hikes must be separated by 10 days, according to the proposal. If the price gap is more than 12 percent, traders must seek government approval for a larger hike.
Currently, traders must obtain government permission for any change in price.
If the base price continues to climb 12 percent higher than the retail price after three consecutive hikes, or if price hikes have negative effects on the economy, the government will step in to stabilize prices, according to the proposal.
On the contrary, if the base price drops more than 3 percent lower than the current retail price, traders must cut their prices by at least half the decline in the base price. The draft decree does not propose any penalties for fuel traders refusing to lower prices.
Transparency
Economist Nguyen Minh Phong from the Hanoi Institute of Socioeconomic Research said the draft decree was a “great effort” on one hand as it would make the public aware of how fuel prices were calculated for the first time.
But on the other hand, the proposed formula still makes it possible for traders to raise prices for their own benefits, he said at a conference in Hanoi on Wednesday, where local experts discussed the draft decree.
“This is not a market-based price calculation method, thus it will not encourage petroleum firms to improve their trading activities.”
Phong suggested that the government should instead calculate and announce a “minimum retail price” based exclusively on global prices while not including any of the taxes or extra fees that the proposed decree would take into account. Consumers could then easily monitor prices on the market by comparing them with the benchmark price, he said.
No change
Nguyen Khanh Toan, deputy secretary general of the Vietnam Automobile Transportation Association, doubted that the new price mechanism would make any difference.
“The calculation method will end up creating only one retail price for petroleum products on the market, just like now, because all the components for the base price seem to be fixed.”
This would hinder competition among businesses, he said.
Monopoly
Nguyen Thanh Toan, deputy director of the Vinh Phuc Province Department of Industry and Trade, said the invisible hand of the market had been blocked from touching fuel retail prices as state-owned Petrolimex, which holds up to 60 percent of the market share, still enjoyed an effective monopoly on the industry.
“If Petrolimex delays a price decrease, other traders will just do the same thing,” he said.
Petrolimex’s gas stations should be partially-privatized to minimize the trader’s monopoly, he said. The company owns some 6,000 stations, more than half of the stations nationwide.
But Bui Ngoc Bao, general director of Petrolimex, said that although his company holds 100 percent of the market share in remote localities, it accounts for only 30-40 percent of the fuel market in big cities like Ho Chi Minh City and Hanoi.
“It’s true that if we don’t raise prices, no other traders will... but as for price cuts, other traders can do what they want and we can’t interfere.
“That’s the good side of a monopoly,” he said.
Deputy Minister of Industry and Trade Nguyen Cam Tu said Petrolimex’s market share had not been a factor in determining prices or trading volumes as both were controlled by the government.
Petrolimex has to import petroleum products and sell to consumers at government-regulated prices, he said.
Ngan Anh
thanhnien
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