Under a draft decree, major petroleum distributors would consider input indexes announced by MOIT and use the calculation formula in the decree to determine their selling prices.

The major distributors and suppliers would have the right to determine retail petroleum prices (and wholesale prices for mazut) within their retail chains and suited to the enterprises’ operating costs. The prices must not be higher than the maximum petrol prices set in different periods.

The method of calculation would be as follows: the maximum petroleum price would equal the world’s petroleum price times the exchange rate, plus the import tariff, the luxury tax, environmental protection tax, VAT, business costs, and enterprises’ targeted rate of return.

Nguyen Minh Duc from the Vietnam Chamber of Commerce and Industry (VCCI) said the draft says enterprises can determine petroleum prices, but they must calculate selling prices based on the formula the state sets, and the input costs that the state announces. Therefore, the new scheme is not different from the current one.

If the proposed scheme is approved, the ceiling prices will be closer to total petroleum distribution costs. The majority of enterprises will have to sell petroleum products according to the ceiling prices, and will not be able to sell at lower prices to compete with other enterprises.

According to Duc, three petroleum pricing schemes are applied in other countries. In one, the state determines petroleum prices and enterprises must not use other price levels. In another, the state sets ceiling prices and enterprises cannot sell products at prices higher than the ceiling prices. And in the third, the state doesn’t set prices for petroleum products.

Of the three, the selling petroleum prices are the highest if the second scheme is applied. If the third model is applied, the selling prices are lower.

Duc said when the state sets ceiling prices, consumers accept the prices, so enterprises use the ceiling prices as their selling prices and there is no need to sell products at lower prices.

In fact, Vietnamese consumers don’t have the habit of comparing the prices.

“The new scheme is just like the ceiling price scheme which has been applied for a long time,” he concluded.

Nguyen Tien Thoa, chair of the Vietnam Price Appraisal Association, said that though the ministry wants to replace the current petroleum pricing scheme (the state sets the ceiling price levels) with a new one (enterprises determine prices based on the factors and formulas to be announced by the state), the nature of the scheme won’t change and the state will still continue to intervene in the market and enterprises’ operations.

Thoa believes the new scheme is a step back compared with current regulations. The draft says enterprises cannot determine and announce their selling prices until the ministry announces input factors for price calculation.

So, to find out their selling prices, enterprises would only have one function of adding up all the costs that form prices that are already set by agencies.

Problems

According to one businessman, if major distributors are allowed to determine maximum selling prices, this means they can determine the costs and profits for retail enterprises as well.

In other words, the draft decree continues to give advantages to major distributors as they hold the controlling stake. If this occurs, there won’t be many price levels in the market for consumers to choose from. This may cause difficulties for supply chains of small enterprises.

Some businesspeople said it would be better to have detailed regulations about profit margins in comparison with input costs announced by MOIT.

Thoa said that now is the time to change the petroleum distribution scheme to settle existing problems by giving enterprises the right to determine their prices, negotiate prices, and compete on price.

He said that it is necessary to remove the scheme under which the state sets business costs for enterprises. If the prices are determined by enterprises based on the market, all involved parties in the value chain will be able to generate reasonable profits.

Luong Bang