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An Analysis of Petrol Price Management Policies in Vietnam from 2020 to 2022

Pham Minh Thuy

Institute of Economics and Finance, Academy of Finance, Hanoi, Vietnam

Abstract: The price and market of petroleum in the world from 2020-2022 have strong fluctuations, mainly due to the imbalance between the supply and demand of petrol and the impact of the Russian military conflict with Ukraine. The world petrol price fluctuates strongly, making the retail price of petrol in Vietnam also fluctuate. This fluctuation has revealed some weaknesses of the current policy of regulating petrol prices in Vietnam. The article outlines some results and shortcomings of the policy of regulating petrol prices in the domestic market, thereby proposing some recommendations to improve the policy of regulating petrol prices in Vietnam in the short term.

Keywords: petrol price, regulating, stabilizing petrol price

Received March 22, 2023; Revised April 25, 2023; Accepted May 07, 2023

Citation: Pham Minh Thuy, An Analysis of Petrol Price Management Policies in Vietnam from 2020 to 2022. Journal of Finance and Economics, 11 (1). 58-67. January 2023. doi:10.12691/jfe-11-1-4

1. Introduction

Petroleum is an important and irreplaceable input factor of production, petroleum is also an energy serving people's livelihood, national defense, and security, and has a strong impact on economic development and stability society of each country... Therefore, all countries have very strict operating policies and measures to manage production, business and petroleum reserves.

In Vietnam, the selling price of petrol and oil is implemented according to the market mechanism, and the State's regulation, in line with the evolution of world gasoline prices and the socio-economic situation in each period. Oil and gas traders are entitled to self-determine their retail price uniformly in their distribution system, not higher than the base price announced by the Inter-Ministry of Industry, Trade and Finance.

From the actual market movements, while the gasoline prices on the world market fluctuated very strongly, the petrol price in Vietnam has revealed some weaknesses of current Vietnam's petrol price management policy.

Therefore, assessing the results of petroleum price regulation in the period of 2020-2022 and proposing solutions to improve the petrol price regulation policy in Vietnam is very necessary.

2. Literature Review

Due to the important role of petroleum products in the economy, in most countries, governments often intervene (more or less) in the petroleum product market to pursue different goals. The extent of State intervention in the petroleum market depends on the situation of the economy and the objectives pursued by the Government. There are many published studies on this issue, as follows:

Research by Minh Anh [1] shows that China implements a fairly strict management mechanism for the retail price of gasoline. Every month, the State Development Planning Commission (SDPC) will announce the oriented retail prices for gasoline. This price changes only if there is a special volatility in the month greater than +/- 5%. Petrol prices can be fluctuated in the range of +/- 8% of the retail price. The retail price is based on the FOB Singapore selling price (with the coefficient is 50%), the FOB London selling price (with the coefficient is 30%), the FOB New York selling price (with the coefficient is 20%). It also followed by sea insurance premium, import tax, consumption tax, value added tax and other fees; reasonable shipping costs. Moreover, this price is based on the retail interest rate.

From the research by Minh Anh [1], it can be found that the Malaysian Government controls the retail petrol price of gasoline and diesel through the "automatic pricing" mechanism. The retail price of petrol and diesel is determined as follows: Retail price = Product cost + Distribution cost + Shipping cost + Agent commission + Company profit + Tax. Profit goal in petroleum business must always be placed in the overall socio-economic development of the country. Therefore, Malaysia stipulates a reasonable profit margin for petroleum business (3% profit compared to selling price). Profit target in petroleum business is actively regulated by the State to ensure this activity has not only reasonable income, but also good service for production and life.

Research by Zapata Juan Antonio, Rivas Carlos Gabriel, Melandri Alejandro [2] recommends the Peruvian government use financial hedging tools to mitigate the impact of oil price fluctuations through derivatives (buying futures or options). In addition, a price stabilization fund can be used as an additional financial instrument.

Research by Nguyen Anh Tuan [3] affirms that the Government of Vietnam regulates domestic gasoline and oil prices according to the market price mechanism under the management of the State. They announce the base price of petrol and oil, retail enterprises petrol and oil may not be sold above this base price; moreover, the petrol price stabilization fund is used to keep petrol prices stable, thereby ensuring the harmonious sharing of benefits between the State, businesses and consumers. However, the base price is still administrative. The factors forming the base price shall be prescribed by competent state authority; price adjustment cycle is implemented according to the date announced by this authority. The base price is the ceiling price to create price competition among enterprises, but in fact, the selling prices of enterprises are close to the base price.

3. Research Methods

The article uses the general research method of Dialectical Materialism and Historical Materialism of Marxism - Leninism; specific research methods such as analysis, comparison, and evaluation... to clarify the issues raised by the research content.

Scientific and practical significance:

- In terms of the scientific aspect, the article focuses on analyzing the legal basis to regulate gasoline prices in the domestic market; the practicality and effectiveness of the current policies to regulate the retail price of petrol and oil in Vietnam.

- In terms of the practical aspect, the article briefly describes the market movements, petrol prices in Vietnam and the world from 2019 to 2022; results of petrol and oil price regulation in Vietnam in the period of 2020-2022… Thereby, some recommendations are proposed to improve the policy of petrol and oil price management in Vietnam.

4. Findings

4.1. Overview of Market Movements, Gasoline Prices in the Period of 2019-2022

According to the Short-Term Energy Outlook [4] released on April 11, 2023, by the US Energy Information Administration - EIA (Figure 1), the balance between crude oil production and consumption in the world in 2019 is relatively balanced. From January to May 2020, the Covid-19 pandemic caused the world's petroleum consumption to drop sharply, while crude oil production also decreased but could not be reduced too much to immediately re-establish supply balance - demand, the amount of crude oil that must be put into inventory is very large (on average, from January to May 2020, the world has to put into inventory 6.88 million barrels/day, of which only April 2020 must be put into inventory 15.06 million barrels/day). From June 2020 to December 2021, when the world's Covid-19 prevention and control activities show signs of getting better, socio-economic activities are gradually restored, and the demand for petrol and oil is gradually restored. However, crude oil production could not be restored immediately to meet demand. From June 2020 to December 2021, the world draws from its stockpile of 1.26 million barrels/day. From January to December 2022, the world's crude oil production showed increasing signs quite well, but the world economy was adversely affected by the influence of the conflict between Russia and Ukraine that took place on February 24, 2022, and abnormally high inflation in many countries… Therefore, on average, from January to December 2022, the world has to put into stockpiles 0.40 million barrels per day.

Figure 1. World crude oil production and consumption from January 2019 to December 2022 and forecast for 2023 (Million b/d). Source: Compiled from EIA data.

Figure 2. Average monthly price movements of some major petroleum products on the world market from January 2019 to December 2022 (USD/barrel). Source: Collected from World Bank and Platt's Singapore data

It is forecasted that in 2023, the average total production will still be higher than the world's total crude oil consumption by about 0.43 million barrels per day. The reality of this forecast depends greatly on the outcome of the war rage in Ukraine, the effectiveness of sanctions against Russia, OPEC+ production decisions and the growth rate of the world economy…

Such movements in crude oil supply and demand in the world market have made petrol prices in the world market fluctuate as shown in Figure 2.

From these figures describing the movement of gasoline prices, there are some notable points as follows:

In 2020, the excess oil supply caused the oil price for delivery in May to fall to negative levels for the first time in history. WTI oil price at the end of the trading session on April 20, 2020, fell to -36.98 USD/barrel (with a very small amount of oil traded at 600 thousand barrels, accounting for 0.71% of average oil consumption a day of the whole world in April 2020); Brent oil price at the end of the trading session on April 21, 2020, reached 9.12 USD/barrel…

However, from May 2020, oil prices began to show signs of recovery when oil demand increased again. In particular, in the first six months of 2022, the sudden increase in oil prices on the world market was due to the double impact of concerns about the armed conflict between Russia and Ukraine, and the tighten oil supplying from OPEC+ Group. In the last six months of 2022, oil prices on the world market tend to decrease gradually due to signs of slowing down of world economic growth, and some countries' economies are at risk of falling into recession ...

Figure 3. Exploitation, export and import of crude oil and finished petroleum products in Vietnam (million tons). Source: Collected from data of the General Statistics Office of Vietnam

Figure 4. Evolution of retail prices of some major petroleum products in Region 1 of Vietnam from January 2019 to December 2022. Source: Collected from announcements of the Vietnam National Petroleum Group (Petrolimex)

As a result, in the world market, on average in 2020 compared to 2019, Brent oil price decreased by 33.94%, WTI oil price decreased by 31.05%, RON 95 gasoline price decreased by 36.51%, Diesel oil price decreased by 37.74%. On average in 2021 compared to 2020, Brent oil price increased by 66.53%, WTI oil price increased by 72.90%, RON 95 gasoline price increased by 72.04%, Diesel oil price increased by 56.22%. On average in 2022 compared to 2021, Brent oil price increased by 41.71%, WTI oil price increased by 38.90%, RON 95 gasoline price increased by 45.30%, Diesel oil price increased by 74.31%. ...

Although Vietnam is a crude oil producer and has 2 oil refineries (with a total processing capacity of 17 million tons of crude oil per year), it is still a net importer of petroleum, with net imported petroleum accounting for 50-65% of the total annual domestic consumption of petroleum (see also Figure 3). Therefore, the retail price of finished petroleum products in Vietnam depends very strongly on the fluctuation of the price of finished petroleum products in the world market, which directly the fluctuation of the price of finished petroleum products in the Singapore market (see also Figure 4).

Specifically, on average in 2020 compared to 2019 in Vietnam's domestic market, the retail price of RON 95-III gasoline decreased by 23.41%, the price of E5 RON 92-II gasoline decreased by 22.74%, the price of 2-K Kerosene down by 31.50%, Diesel oil price 0.05S-II down by 25.55%, Mazut 3.5S oil price down 22.23%. On average in 2021 compared to 2020, the retail price of RON 95-III gasoline increased by 34.70%, the price of E5 RON 92-II gasoline increased by 34.13%, the price of 2-K Kerosene increased by 38.83%, the price of Diesel 0.05S-II increased by 28.87%, the price of Mazut 3.5S oil increased by 37.09%. On average in 2022 compared to 2021, the retail price of RON 95-III gasoline increased by 28.37%, the price of E5 RON 92-II gasoline increased by 28.28%, the price of 2-K Kerosene increased by 60.59%, the price of Diesel 0.05S-II increased by 56.30%, the price of Mazut 3.5S oil increased by 18.34%...

In general, from 2020 to 2022, the retail price of finished petroleum products in Vietnam still fluctuates according to the trend of world gasoline prices. However, the range of fluctuation of the retail price of finished petroleum products in Vietnam is always smaller than the fluctuation of world petrol price. This is the result of the regulation of petrol prices in the domestic market by the Vietnamese government with the aim of stabilizing prices.

4.2. Legal Basis for Vietnam to Regulate Gasoline Prices in the Domestic Market

The Constitution of the Socialist Republic of Vietnam [5] stipulates: “The Vietnamese economy is a socialist-oriented market economy with varied forms of ownership and economic sectors; the state economy plays the dominant role.” (Clause 1, Article 51) and “The State shall develop and improve economic institutions, regulate the economy on the basis of respect for market rules;” (Article 52). As the basic law of the Socialist Republic of Vietnam, and having the highest legal effect, the Constitution affirms that the State of Vietnam has the right and responsibility to regulate several important areas in the economy to realize its socialist orientation.

Institutionalizing this provision of the Constitution, the Law on Prices [6] has stipulated the principles of price management:

“1. The State implements price management according to the market mechanism; respecting the right to self-assess and compete on prices of production and business organizations and individuals according to the provisions of law.

2. The State regulates prices as prescribed in this Law to stabilize prices, protect legitimate rights and interests of production or business organizations and individuals, consumers and interest of the State. " (Article 5).

According to the provisions of the Law on Prices, all enterprises are entitled to self-assess the goods and services they produce and trade, except for goods and services on the list of goods and services determined by the State; may adjust prices, compete on prices through time-based pricing methods, bid, auction, negotiate prices, lower the selling prices of goods and services without being considered a violation of competition law and law on anti-dumping of imported goods. The State can carry out 04 activities of price regulation (including price stabilization; pricing; price negotiation; checking price-forming factors) for many goods and services with lists or specific criteria, in which finished gasoline and oil are in the list of goods and services that are subject to price stabilization. This is an outstanding point recorded in the process of perfecting the socialist-oriented market economy institution in the field of price management in Vietnam.

Regarding the current mechanism of petrol price regulation in Vietnam, according to the provisions of Decree No. 83/2014/ND-CP dated September 3, 2014, of the Government on petrol and oil trading, Decree No. 95/2021/ Decree No. 83/2014 /ND-CP dated November 1, 2021, of the Government amending and supplementing several articles of Decree No. 83/2014/ND-CP dated September 3, 2014, and related guiding documents, petrol price is carried out according to the market mechanism, under the management of the State. Because the petroleum trading market is not competitive and also has some enterprises that dominate the market, petroleum is a conditional business item, therefore, the State implements the management through specific regulations on the calculation base price formula and price adjustment mechanism. In case the factors constituting price fluctuations cause the base price to fluctuate within a certain range, the focal trader is entitled to increase the retail price accordingly; in case factors constituting large fluctuations or price increases affect socio-economic development and resident's lives, the State shall announce measures to stabilize prices through tax administration, price stabilization funds following current law...

In general, the base price of petroleum products is determined by the formula:

where:

- The CIF price is calculated by the world petrol price (Platt's Singapore price) plus the expenses to bring petroleum from abroad to Vietnam port. These elements are determined by actual condition. In which, the world petrol price is calculated on an average of 10 (or 15) days (depending on specific time) close to the date of price calculation specified in Decree No. 83/2014/ND-CP or 95/2021/ND-CP.

- Expenses for bringing petroleum from abroad to Vietnamese ports, including plus or minus Premium plus insurance premiums plus freight to Vietnamese ports plus reasonable and valid expenses incurred during the period import (if any); in which the insurance and freight charges to Vietnamese ports are based on the advanced average level incurred by the key traders.

- The foreign currency rate used to calculate the CIF price is the foreign currency rate sold at the end of the day of the Joint Stock Commercial Bank for Foreign Trade of Vietnam, calculated on an average of 10 (or 15) days close to the date of price calculation.

- The foreign currency exchange rate for calculating import tax and special consumption tax, which is used to calculate the base price, is the rate prescribed by tax laws, calculated on the average of 10 (or 15) days close to the date of price calculation.

- Import tax, special consumption tax, value-added tax, environmental protection tax; taxes, fees and other deductions as prescribed by law.

- The normative business expenses and profit shall be determined by the Ministry of Finance and notified annually for the Ministry of Industry and Trade to apply in the formula for calculating the base price of petrol and oil.

- The level of appropriation for the price stabilization fund shall comply with the announcement of the Ministry of Industry and Trade at the time of announcement of the base price.

In general, to stabilize gasoline prices, the authorities can guide and organize the implementation of 07 groups of measures as follows : (i) Measures to increase/decrease the supply of petrol and oil in the market (regulating the import or sale of national reserve goods ...); (ii) Financial measures (increase/reduce taxes or support prices following the provisions of law and international commitments ...); (iii) Establishing and using a price stabilization fund gasoline; (iv) To require petrol and oil trading enterprises to register prices; (v) Examining the factors that form petrol prices; (vi) Announce the base price of petrol and oil (which is the maximum price) so that petrol and oil business enterprises can self-declare their petrol and oil retail prices; (vii) Other measures as prescribed by law (checking activities of key traders and petrol retailers to combat sales restrictions, waiting for the price adjustment, etc.).

4.3. Results of Petrol and Oil Price Regulation in Vietnam from 2020-2022

In the period of 2020-2022, when the world gasoline price fluctuates very strongly, petrol and oil traders in Vietnam have not been given the right to set prices by themselves, and the State of Vietnam still has to apply flexible measures of price management to contribute to stabilizing the price of finished petroleum products in the domestic market. Specifically: (i) The Inter-Ministry of Industry, Trade and Finance adjusts the base price of petrol every 10 days (before January 2, 2022, is 15 days), petrol retail stores do not sell gasoline at a price higher than this base price; (ii) Inter-Ministry to increase the use of petrol and oil price stabilization fund to limit the very sharp increase in world gasoline prices from affecting domestic gasoline prices; (iii) Using more tax tools (environmental protection tax reduction for petrol and oil from January 1, 2022, April 1, 2022 and July 11, 2022), fees, etc. to stabilize petrol prices.

Thanks to these management measures, the retail price of gasoline in Vietnam from 2020-2022 has been much more stable than the sharp fluctuations of gasoline prices in the world market [7]. Specifically, Table 1 and Table 2 show some highlights as follows:

(1) In 2020 compared to 2019, the price of finished petroleum products on the world market decreased by 34.41 - 37.74% (Table 1, line 5). However, because of the increase of the Petroleum Price Stabilization Fund in Vietnam, the selling price of retail gasoline in Vietnam only decreased by 22.23 - 25.55%.

(2) In 2021 compared to 2020, the price of finished petroleum products on the world market increased from 56.22 - 72.04% (Table 1, line 6), but the retail price of gasoline in Vietnam increased only 28.87 - 37.09%

The main reason is that in 2021, the Inter-Ministry of Finance - Industry and Trade has increased the use of the Petroleum Price Stabilization Fund to curb the increase in domestic gasoline prices in the face of a very strong increase in world gasoline prices, then the balance of the Petroleum Price Stabilization Fund in Vietnam at the end of 2021 has decreased sharply compared to previous years. From Table 2, it can be seen that in 2020, the offset from the Petroleum Price Stabilization Fund is VND -6,436.4 billion (of which, the provision is VND 10,220.7 billion, and expenditure is VND 3,784.4 billion). It means VND 6,436.4 billion has been calculated to increase the retail price of petrol and oil, meanwhile, in 2021, the compensation from the Petroleum Price Stabilization Fund is VND 8,322.4 billion (of which, the provision is VND 1,304.2 billion, expenditure is VND 9,626.6 billion), which means VND 8,322.4 billion has been compensated the retail loss of petrol and oil. This activity made the total balance of the Petroleum Price Stabilization Fund at the end of 2019 to be VND 2,779.8 billion, at the end of 2020 to increase to VND 9,234.6 billion and at the end of 2021 to decrease to only VND 898.6 billion.

(3) In 2022 compared to 2021, the price of finished petroleum products on the world market still increased sharply: from 27.94 - 74.31% (Table 2, line 7), the retail price of petrol in Vietnam increased by only 18,34 - 56.30%. The reason is that the balance of the petroleum price stabilization fund is not much left, so there are not many financial resources from this fund to cover losses for the retail price of gasoline when it wants to keep it as low as 2021 (in 2022, the offset from the Petroleum Price Stabilization Fund is VND -3,838.7 billion, setting aside for the fund is VND 6,234.0 billion, expenditure for using the fund is VND 2,395.2 billion). However, in 2022, the State of Vietnam reduced the environmental protection tax 3 times on January 1, 2022, April 1, 2022, and July 11, 2022 (from July 11, 2022, reducing the tax to the lowest level in the environmental protection tax for petrol and oil and it is estimated that this tax reduction policy has the impact of reducing state budget revenue in 2022 by about VND 32.5 trillion). This tax reduction activity has helped gasoline prices in Vietnam in 2022 increase less than the price of finished petroleum products on the world market.

Table 1. Price movements of finished petroleum products on the world market and in Vietnam. (Source: calculations from Platt's Singapore and Petrolimex data)

Table 2. Situation of deduction and use of petroleum price stabilization fund in Vietnam from 2018 to 2022 (Unit: VND million. Source: Compiled from reports of the Ministry of Finance)

As for the price movement of RON 95 gasoline, from Figure 5, the line shows that the price of RON 95 gasoline in Vietnam is more stable than the price of gasoline in Singapore. In particular, in 2020, the line showing the price movement of RON 95 gasoline in Vietnam is usually located above the gasoline price line in Singapore. In 2021 and 2022, the line showing the price movement of RON 95 gasoline in Vietnam is usually below the gasoline price line in Singapore. In addition, the price of RON 95 gasoline in Vietnam often fluctuates 10-15 days slower than the price of gasoline in Singapore. The reason is that the State of Vietnam has regulated the retail price of petrol in Vietnam based on the previous 10-15 days moving average of the corresponding petrol price in Singapore.

This means that gasoline prices in Vietnam have been more stable in recent years, not subject to big fluctuations like world gasoline prices. The main contribution to this result can be mentioned some key measures as follows:

• The functional agencies and units that play the main role in stabilizing petroleum prices (the National Assembly, the Government, the Inter-Ministry of Industry and Trade - Finance, and petroleum traders ...) have worked proactively and have high responsibility, give strong enough and timely solutions to keep petrol prices stable.

• The biggest contribution to the stabilization of petrol prices in Vietnam in the past time is the measure of petrol and oil price management by the authorities through the announcement of the base price of petrol every 10 days (before January 2, 2022, is every 15 days), petrol retail stores are not allowed to sell petrol at a price higher than this base price. The introduction of the ceiling price of petrol as the "moving average" price of the previous 10 (or 15) days had the effect of stabilizing the domestic petrol price very strongly in the face of huge fluctuations (sometimes volatile hourly) of world gasoline prices. For example, on March 9, 2022, the price of RON 95 gasoline at the port of Singapore skyrocketed to 153.77 USD/barrel (an increase of 6.15% compared to the average price on March 8, 2022, higher than the average price from March 1-10, 2022, is 13.27%). Therefore, if Vietnam adjusts petrol prices by day, these days petrol prices will fluctuate very strongly; however, since Vietnam adjusts petrol prices according to the base price which is the moving average price of the previous 10 days, this "shock" has been avoided (if calculating the moving average price of the previous 20 or 15 days, the price is much more stable).

• The timely intervention of the Ministry of Industry and Trade (requiring traders to urgently import more finished petroleum products; intensifying the inspection of petrol and oil trading establishments to prevent the situation of stopping sales, waiting for the price adjustment…) to keep enough supply of petroleum to the market. This move helped the economy operate normally without a shortage of gasoline, and the petroleum market soon stabilized.

• Vietnam already has petroleum reserves (by the end of 2022, the national reserve can meet about 6.5 days of consumption; the commercial reserve of petroleum traders is regulated to be 20 days of supply,…), so it will have the effect of stabilizing gasoline prices to a certain extent.

• The impact of the petrol price stabilization fund has helped to prevent the retail price of petrol and oil in Vietnam from increasing too sharply (by reducing deductions and increasing the use of the fund) or falling too quickly (by increasing deductions and reducing the use of the fund), especially when the world petrol price fluctuates strongly.

Figure 5. Retail price of RON 95-III gasoline in Region 1 of Vietnam and RON 95 gasoline at Singapore port from January 1, 2020, to December 31, 2022. Source: Aggregated from announcements by Petrolimex and Platt's Singapore

• The competent authorities promptly carried out the proposed procedures and approved by the National Assembly Standing Committee to reduce the environmental protection tax on gasoline in the context of a very strong increase in world gasoline prices. This move has greatly reduced the retail price of gasoline in Vietnam.

Thus, over the past time, the State of Vietnam has performed quite well in its regulatory role to stabilize the retail price of gasoline in the country. This is a clear sign of the implementation of the socialist-oriented market economy development of the State of Vietnam, which is increasingly being improved to be more and more suitable with the development reality of the country.

5. Comments on the Policy of Regulating Petrol Prices in Vietnam

From the actual market movements, the price of petrol in Vietnam and in the context of gasoline prices on the world market fluctuating strongly as in the past time, some shortcomings in the current petrol price management mechanism in Vietnam [4] can be mentioned as follows:

(1) Inadequacies in policy design, specifically:

• The country's petroleum reserves are still low: By the end of 2022, Vietnam's national petroleum reserves are only enough for 6.5 days of consumption, plus the minimum required petroleum reserve equals twenty (20) supply days at major petroleum traders ... is still very low in the context of the vibrant of Vietnam's economic activity and the current instability of the world petroleum market;

• The time to regulate gasoline prices according to Decree 95/2021/ND-CP stipulated on the 1st, 11th and 21st is too rigid;

• The formula for calculating the base price is still unreasonable, for example, the base price is calculated based on the average of the previous 10 days of the world price while requiring key traders to reserve petroleum at least equal to 20 days of supply…;

• The State's revenues from petroleum are usually calculated as a percentage of the cost of gasoline, so when the cost price fluctuates strongly, it will make the retail price of petrol fluctuate more strongly;

• National petroleum reserve is the State's responsibility to implement but makes traders responsible for storing...

(2) Inadequacies in response and administration of management agencies, specifically:

• Failure to promptly adjust petroleum business expenses to be close to reality, for example, in Decree 95/2021/ND-CP stipulating normative business expenses determined and notified by the Ministry of Finance annually (based on the audited report of the previous year's performance of the key traders) for the Ministry of Industry and Trade to apply in the formula for calculating the base price of petrol and oil. However, in reality, this cost level has been kept fixed since 2014 and only increased on 11/11/2022. Expenses such as: bringing gasoline from abroad to Vietnam, bringing gasoline from the refinery to the port, domestic premium, etc. are also slow to be adjusted compared to the actual fluctuations;

• Require traders to reserve petrol and oil without charging a reasonable reserve fee (capital stagnation, preservation, loss, etc.);

• The effectiveness of the work of guidance, inspection and supervision is still low; failed to detect and promptly handle many violations specified in Decree 83/2014/ND-CP and 95/2021/ND-CP of petroleum traders…

(3) Inadequacies in the operation of petrol and oil traders: There are still many violations prescribed in Decrees 83/2014/ND-CP and 95/2021/ND-CP in terms of reporting and statistical regimes; the scale of petroleum storage; minimum petroleum reserves; selling to the wrong customers…

Therefore, at some time, many gas stations in Vietnam have to close because there is no gasoline for sale or have to sell limited (no more than VND 30,000 or VND 50,000 for motorbike riders, no more than VND 300,000 or VND 500,000 for people who go by car to buy gasoline). For example, according to the Market Management Department of Ho Chi Minh City, “As of the afternoon of October 10, 2022, there were 121/550 stores with no gas left, stores registered to buy gasoline, but the supplier also lacked gasoline. or there is no more gasoline to supply” [8]; “Updated reports from management units published by the Ministry of Industry and Trade on the evening of October 10, 2022, show that the number of petrol stations temporarily suspending sales in Vietnam is up to several hundred stores” [9].

6. Recommendations to Improve the Petrol Price Management Policy in Vietnam

From the evaluations, findings above, there are some recommendations to improve the current policy of petroleum price management in Vietnam as follows:

Firstly, regarding the time to regulate petrol and oil prices, Decree No. 95/2021/ND-CP stipulates that it will be implemented on the 1st, 11th and 21st of every month. It is recommended not to make such a "rigid" regulation because (i) It will be difficult for the Inter-Ministry of Industry, Trade and Finance to operate when gasoline prices in the world market fluctuate too strongly (when it is necessary to adjust before the deadline). the deadline, it is required to consult the Prime Minister, which will take a lot of time and procedures); (ii) When the date of gasoline price adjustment is near, everyone can calculate whether the price will be adjusted up or down which easily leads to the situation that gas stations try to limit selling, gasoline users try to hoard… (when gas prices will go up), that makes the management agencies to have to check complicatedly or cause bad public opinion…

It is recommended to specify a long adjustment period (maybe from 3 to 15 days) when the base price increases or decreases by at least 3% compared to the previous base price. The time of price adjustment should be kept secret so that petrol traders do not seek to take advantage to maximize their profits (such as restricting sales, closing stores, etc., which has made public opinion very upset over the past time).

Secondly, it is about the regulation that "the main trader of petrol and oil and the main trader of petrol and oil production with an organized petrol and oil distribution system must ensure a stable level of compulsory petroleum reserve equal to at least twenty (20) days of supply” in Decree No. 95/2021/ND-CP. In the current conditions, Vietnam needs to better ensure energy security, and have petroleum reserves large enough to serve the normal socio-economic operation. However, Decree No. 95/2021/ND-CP stipulates that petroleum reserves are reduced compared to the provisions of Decree No. 83/2014/ND-CP (30 days). The regulation of reducing the compulsory petroleum reserve of Decree No. 95/2021/ND-CP has contributed to the situation that some petrol stations had to close because of no petrol to sell recently, making the Ministry of Industry and Trade must urgently request key traders to import a large amount of petroleum to promptly serve domestic consumption demand.

It is recommended that the compulsory petroleum reserve level should be at least equal to 30 days of supply as stipulated in Decree No. 83/2014/ND-CP. In addition, it should be clearly stated that in cases where the supply of petrol and oil in the market shows a lack of locality, the import source or the place of production has not arrived in time, the authorities shall request the petrol and oil wholesalers still have to supply enough goods for their distribution system, even though this activity may cause that trader's petroleum reserves to not be enough for 30 days of supply (when the authorities check and discover it, it will be is not considered an error).

Thirdly, on how to calculate the base price, Clause 28, Article 1 of Decree No. 95/2021/ND-CP has a paragraph stipulating: "The world gasoline price is determined by the Ministry of Industry and Trade on the principle of calculating the average according to the number of days. price between two periods of announcing the base price of the prices of petroleum products traded on the international market” (i.e., the average of about 10 days close to the announcement date of the base price).

This regulation is unreasonable because Clause 23, Article 1 of Decree No. 95/2021/ND-CP stipulates that "the main trader of petrol and oil and the main trader of petrol and oil production has an organized distribution system. petrol and oil must ensure a stable level of compulsory petroleum reserve equal to at least twenty (20) days of supply…". Thus, it can be said figuratively that a trader sells litres of petrol today but actually bought it about 20 days ago. Therefore, the cost price formed on the selling price of petrol litre today must be calculated based on the world gasoline price formed 20 days ago. However, Decree No. 95/2021/ND-CP stipulating the calculation of the average price of petroleum products for about 10 days close to the date of announcement of the base price is not accurate in calculating the actual cost of petrol and oil of the petroleum retailers.

From Figure 6, two issues stand out as follows:

(1) When the daily gasoline price tends to increase (for example, from April 1 to June 30, 2022), the 10-day moving average price line is usually above the 20-day moving average price line. This means that the base price of petrol in Vietnam calculated from the 10-day moving average world price will be higher than from the 20-day moving average, i.e., if calculating the base price of petrol from the moving average world price 10 days, petrol traders will have higher profits. On the contrary, when the daily gasoline price tends to decrease (for example, in the period from July 1 to August 18, 2022), the calculation of the base price of gasoline from the 10-day moving average world price will cause Petroleum traders to be more prone to capital loss. More specifically, when gasoline prices tend to increase in the period from April 1 to June 30, 2022, the average difference between the 10-day moving average price and the 20-day moving average price is 1.87 USD/barrel; conversely, when gasoline prices tend to decrease in the period from July 1 to August 18, 2022, the average difference between the 10- day moving average price and the 20-day moving average is -4.72 USD/barrel. For the whole period from April 1, 2022, to January 3, 2023, the average difference between the 10-day moving average and the 20-day moving average is -0.55 USD/barrel.

Especially, in the period from July 1 to December 19, 2022, when the world gasoline price tended to decrease quite strongly, the calculation method prescribed by Decree No. 95/2021/ND-CP made the price basis declines rapidly with each price adjustment, the lead trader's real cost is often significantly higher than the base price (average difference between the 10-day moving average and the 20-day moving average, from July 1 to December 19, 2022, is -1.88 USD/barrel) and they have to find ways to reduce losses for their businesses by measures such as: sharply reducing the discount when delivering gasoline to customers, which are retail businesses; restricting petrol and oil delivery in remote locations, high transportation costs... This reaction has contributed to the situation that many gas stations have stopped selling as reported in the media.

(2) The method of managing gasoline prices by calculating the base price of gasoline from the moving average world price of the previous period will have a very strong price stabilizing effect (specifically when the daily gasoline price tends to increase, the moving average price line is usually below the daily gas price line; and vice versa). Moreover, the longer the number of days on which the moving average is calculated, the greater the stabilizing effect…

Figure 6. Movement of RON 95 gasoline price in actual daily transactions, moving average price between the previous operating period and this period (moving average of about 10 days) and the moving average price of 20 days before the operating period at Port of Singapore from April 1, 2022, to January 3, 2023 (Unit: USD/barrel. Source: Aggregated, calculated from data of Platt's Singapore)

Therefore, the recommendation in Decree No. 95/2021/ND-CP should be revised that stipulates that the base price is calculated from "the world petrol price determined by the Ministry of Industry and Trade on the principle of averaging according to the number of days with the price of 20 days (corresponding to the number of days of supply the minimum compulsory petroleum reserve, that specified in the Decree) before the announcement of the base price of the prices of petroleum products traded on the international market”.

Fourthly, in the long term, it should be made to fix the state budget revenues for petroleum. That means, to collect taxes by a fixed amount for each specific unit (litre, kg, etc.). In the immediate future, it is possible to immediately announce a fixed rate (collected in absolute terms, not relative as today) with a special consumption tax, and then it will have a positive effect. This tax calculation method will have the following benefits: (i) State budget revenue from petroleum will be quite stable, independent of fluctuations in world gasoline prices (if the method of calculating import tax, special consumption tax, or value-added tax, is based on percentage rate, when the world gasoline price increases, the state budget revenue will increase; when the world gasoline price falls deeply, the state budget revenue water will also decrease very sharply); (ii) It will have a good effect on stabilizing petrol prices (almost similar to using the current Petrol Price Stabilization Fund).

References

[1]   | Minh Anh, “History and international experience in petroleum management and business”, Industry and Trade Newspaper, September 15, 2022, Vietnamese.
[2]   | Zapata Juan Antonio, Rivas Carlos Gabriel, Melandri Alejandro, A Proposed Fuel Price Stabilization Mechanism through the Use of Financial Derivatives, Inter-American Development Bank, Technical notes, No. IDB-TN-394, March 2012, English.
[3]   | Nguyen Anh Tuan, Improving the state management mechanism on prices for gasoline and oil in Vietnam, Ministry-level scientific research project, Code: 2017-13, completed in 2018, Vietnamese.
[4]   | US Energy Information Administration, Short-term energy outlook data browser, Release Date: Apr. 11, 2023, English.
[5]   | The 13th National Assembly of the Socialist Republic of Vietnam, 6th session, The Constitution of the Socialist Republic of Vietnam, passed on November 28, 2013, Vietnamese.
[6]   | The National Assembly of the Socialist Republic of Vietnam, term XIII, 3rd session, Law on Price, passed June 20, 2012, Vietnamese.
[7]   | Pham Minh Thuy, “Petroleum market developments and solutions to control petrol prices”, Review of Finance, No. 794+795, pp. 94-97, February 2023, Vietnamese.
[8]   | Cong Trung and Nguyen Tri, “There are 121 petrol stations in Ho Chi Minh City are 'thirst' for petrol”, Tuoi Tre Newspaper, October 10, 2022, Vietnamese.
[9]   | Ngoc An, “Why does the Ministry of Industry and Trade say that more than 100 gas stations closing down are 'uncommon'?”, Tuoi Tre Newspaper, October 11, 2022, Vietnamese.