Records about to be broken

At 8 pm on June 23, 2014, petroleum distributors all quoted RON95 petrol prices at VND25,730 per liter (Zone 1) and VND26,240 per liter applied to areas far from the center and at ports (Zone 2).

This is the highest RON95 price level ever. However, analysts believe that the record high price is about to be broken as the petrol price has been escalating recently.

In May 2019, Vietnam witnessed a succession of days of rapid petrol price increases. But, the price fell after reaching the peak of VND22,190 per liter.

However, it’s highly possible that the 2014 historic price peak will be broken as fuel prices are rising all over the world. With the current price level of VND24,330 per liter, another VND2,000 per liter would establish a new peak.

In fact, the new petrol price record would be higher than the VND25,370 per liter set in 2014, if Vietnam were not using the petrol price stabilization fund to stabilize the market. According to MOIT, petrol prices would increase by VND1,859 per liter (E5RON92) and VND2,527 per liter (RON95).

However, analysts warn that Vietnam will not be able to continue relying on the stabilization fund.

As of early May 2019, the stabilization funds of many large petroleum distribution companies had become negative : minus VND355 billion for Petrolimex and minus VND500 billion for PVOil. Meanwhile, they still had to use funds to subsidize petrol prices. They complained that they had to use their own money and borrow money to offset the prices.

The same thing is occurring now. The stabilization funds of many enterprises are now more negative than in 2019. As of 4pm on October 26, Petrolimex’s fund had become minus VND262 billion. As of October 11, PVOil fund was minus VND700 billion.

This means that if petrol prices in the world continue escalating, the domestic prices would also rise because the stabilization funds no longer can help curb escalation.

Cut tax to curb prices

“The price stabilization fund should be seen as a savings book of a family. Family members need to know when they should spend money and how much to spend with their conditions. It was unreasonable to use the money from the fund when the pandemic developments were complicated, people had to stay at home, factories had to suspend operations and production became stagnant. And now, when people return to normal life and travel and factories reopen, petrol prices are escalating while the fund is running out of money,” an expert said.

He warned that the ups and downs of petrol prices in the time to come may not match the increases and decreases in the world market. According to the Ministry of Industry and Trade (MOIT), the use of stabilization fund recently has helped the domestic prices fluctuate less heavily than the world prices.

While the average prices in the world market have increased by 59.08-76.03 percent, the domestic petroleum prices have increased by 40.23-52.59 percent only.

If the prices in the world market decrease in the time to come, the domestic prices will fall more slowly, because the watchdog agency may have to think of accumulating more for the stabilization fund for use when necessary.

If the prices in the world market continue to increase, the domestic prices will also increase. If so, the burden on people and businesses will be heavy (people use petrol, while businesses use diesel).

The Government has previously asked to seek ways to force the petrol prices down. But domestic prices must go up and down in accordance with world prices.

Therefore, analysts believe that cutting the tax is the only way to slash petroleum prices. Cutting the environmental protection tax would be the most effective way.

The environmental protection tax on petrol has increased by VND1,000 per liter to VND4,000, the ceiling level, since January 1, 2019, while the tax on diesel has gone from VND1,500 to the ceiling level of VND2,000.

High tax rates have been imposed on petroleum products since then, except the reduction on air fuel in 2020.

However, if slashing the tax, the State budget would lose revenue of tens of trillions of dong. So, it’s necessary to obtain an agreement from Ministry of Finance (MOF), which will submit the tax cut plan to the National Assembly Standing Committee. 

Luong Bang