Hoang Van Cuong, member of the National Assembly’s Finance and Budget Committee, noted that the state plays a major role in regulating petroleum prices and that when world prices fluctuate heavily, the state applies measures to avoid big price shocks to consumers.

Though petroleum prices are controlled by the state, the real market prices must be in accordance with the world’s prices.

The typical characteristic of the petroleum market now is that the state has the right to request petroleum companies to retail products at certain price levels, even if the prices cause the companies to take a loss.

“If the tool of administrative instructions is abused, petroleum distributors and retailers cannot make a profit and they will try to circumvent the laws,” Cuong said.

In the past, filling stations closed their doors, citing short supply, though their inventories were still high. The problem was that they could not sell petroleum products at prices higher than the ceiling levels set by the state, and the more they sold, the bigger losses they incurred.

Cuong believes the petroleum pricing scheme should be determined by market supply-demand, rather than administrative instructions.

He said this would stabilize prices even when world prices fluctuate abnormally. If the market is used, enterprises would still be able to sell products at reasonable prices thanks to good inventories.

The current problem is that enterprises with good business performance and those with bad business results sell products at the same prices, which means there is no competition in the market.

“If the prices are determined by the market, enterprises will try to cut input costs, and they will even try to buy products when prices are low and sell when prices are high. If so, the market prices will be reasonable, bringing benefits to consumers,” Cuong explained.

Citing information that world prices make up 64-72 percent of the prices in Vietnam, Bui Ngoc Bao, chair of the Vietnam Petroleum Association, said that Vietnam’s prices depend on world prices.

Bao pointed out that all decrees on petroleum trade say that prices are set by administrative instructions.

“The price management has been set strictly. State management agencies adjust petroleum prices once every seven days. This means that state management agencies are doing things that should be done by enterprises,” Bao said.

Cuong said the management policy needs to be adjusted and focused on market-based pricing.

“We now have necessary conditions to use the market tool in regulating petroleum prices and avoid staying passive as domestic output accounts for a large proportion,” Cuong said. “In the future, prices must be determined by enterprises based on market conditions."

However, Cuong stressed that applying the market-based pricing policy doesn’t mean absolute price floating.

“We need to use modern tools to stabilize petroleum prices. In the world, large companies use derivative measures to do this. I think the state needs a policy and framework for enterprises to use derivative measures to stabilize prices,” he said.

“There should also be national reserves and a well organized market where involved parties can make healthy transactions,” he added.

Emphasizing that there should be a competitive market, Cuong said market members must have freedom and not be forced to buy products from another certain seller.

Bao said there should be a mechanism under which enterprises are given the right to make decisions to optimize their business.

“Once there is competition in the market, the prices will be set at a level which benefit consumers,” he said.

Some experts have suggested using fuel price hedging as a tool for enterprises to use to help businesses protect themselves amid price fluctuations.

Fuel price hedging was once mentioned in Decree 83/2014 and applied in transactions at the Mercantile Exchange of Vietnam. Including fuel price hedging in new legal documents, therefore, is a necessity.

Luong Bang