Petroleum distributors and retailers have reacted strongly to the draft decree on petroleum business management.

In a petition to the Prime Minister, the group of businesses emphasized two major problems of the draft decree. First, the tentative regulation doesn’t observe the rules of the market economy, because it maintains the pricing method, under which retail prices will be determined by administrative order rather than market supply-demand conditions.

Second, the draft decree shows discriminatory treatment toward petroleum companies, offering advantages to large exclusive enterprises.

Therefore, the businesspeople have requested the government and relevant ministries to amend the draft with the spirit of renovating the petroleum business management scheme and laying down a legal framework for the petroleum market to operate under the principles of a market economy.

On October 4, the draft decree compilation raised its voice in defence of its view.

Nguyen Thuy Hien, deputy director of the  Domestic Market Management Department under the Ministry of Industry and Trade (MOIT), came forward and explained the inquiries.

Regarding the draft regulation that each distributor must buy petroleum from only one source and is not allowed to trade between each other, Hien said if distributors are allowed to buy petroleum from each other, this will create many intermediaries in the supply chain (the secondary market), which leads to higher distribution costs. 

That is one of the reasons why the discount rate for retailers is always low, which doesn’t encourage enterprises to sell petroleum products to the market.

She said that trade among petroleum distributors makes it difficult for state management agencies to reckon up the sales. This same volume of petroleum products is in accounts of many distributors, thus leading to overlapping in statistical work. 

The overlapping produces untrue figures, thus causing difficulties for state management agencies to control supply sources and regulate the market.

Thirdly, distributors buy petroleum products from each other when they want to improve their financial situation. The trade creates revenue for petroleum distributors, thus helping them prove their financial capability when borrowing capital from banks. Meanwhile, this is not the appropriate purpose of petroleum trading.

Hien said the draft decree is designed in a way to remove the regulation allowing petroleum distributors to trade between each other so as to avoid the ‘fabrication’ of statistics. This will help major merchants calculate the volume of products consumed domestically, so they can plan the imports and supply to the market.

This will also help state management agencies define domestic demand, so they can allocate annual quotas to major merchants.

Petroleum trading is a conditional business field. The regulation that petroleum distributors are not allowed to buy petroleum from each other won’t lead to weaker competitiveness in the market.

Also, the regulation, if approved, will create a driving force for petroleum distributors to rise to a higher level (becoming major merchants, for example).

Replying to criticism about the pricing scheme, Hien said state agencies need to set up formulas to calculate petroleum prices so that enterprises can consider and set their own prices.

Regulations 

Dau Anh Tuan, deputy secretary general of the Vietnam Chamber of Commerce and Industry (VCCI), said the decree needs to have a higher market level.

If the state continues to hold the right to set petroleum prices, decrees will have to be amended again and again, because it is impossible to define market prices since enterprises’ conditions vary, while prices fluctuate all the time.

Also according to VCCI, the formulas shown in the draft decree which petroleum distributors use to calculate total costs and define retail prices remain nearly unchanged with the current formulas.

If the pricing scheme is still applied, the ceiling prices (calculated with the given formulas) will be very close to cost prices, which means that retailers all have to sell petroleum products at ceiling prices and they can’t sell at lower prices to compete with other enterprises.

VCCI has recommended allowing enterprises to define selling prices themselves if they can ensure transparency.

VCCI also doesn’t applaud the tentative regulation on prohibiting distributors from trading products between them, because this may violate the Law on Enterprises, Trade Law and Competition Law.

Hanh Nguyen