Common ethanol fuel mixture (E5 RON 92 gasoline) has been receiving many incentives from the State. However, high prices of materials for ethanol production and relevant materials plus the high tariff levied on imported ethanol have significantly eroded E5 gasoline’s advantages.

According to a report released by the Ministry of Industry and Trade in July 2017, Vietnam needed at least 267,850 cubic meters of ethanol for mixing E5 gasoline

Almost a year has elapsed since the official introduction of E5 gasoline which aimed to completely eliminate RON92 gasoline. Yet no official and comprehensive report has been around publicly about the efficiency of such an introduction. Roughly a month ago, during a working session with a delegation from the Prime Minister, Petrolimex—Vietnam’s largest fuel firm—said E5 RON 92 gasoline accounted for 44% of their volume of gasoline sold on the market.

However, Petrolimex is an exception. Others have achieved much lower rates.

It took 11 years to revise and formulate the project to develop biofuel for 2015 with a vision to 2025 which was made public in late 2007. Such a careful scrutiny was meant to make the replacement go smoothly into the people’s life, reduce environmental pollution and promote the use of green energy.

Things are not that simple, though. Up to the moment of speaking, it can be said that the intention to develop ethanol production establishments has failed. Tung Lam, a private business in Quang Ngai Province, is now the only domestic entity to produce ethanol to sell it to mixture facilities. Designed to produce 200,000 cubic meters of ethanol per year, this enterprise’s products are enough for turning out more than five million cubic meters of E5 gasoline. However, similar projects to be developed by State-owned companies and corporations in Dung Quat, Binh Phuoc and Phu Tho are still inert at the moment for various reasons. A report prepared by the Ministry of Industry and Trade (MIT) and presented to lawmakers in May this year said the three problem-ridden projects had yet to re-start. In other words, the plan to supply additional sources of ethanol as of the end of 2017 has remained simply on paper.

Since the common ethanol fuel mixture E5 RON 92 was introduced to replace RON 92 gasoline, the price of ethanol has never been stable as it has been constantly on the rise. During the hike of fuel prices on October 5, material ethanol sold for VND15,458 per liter, excluding value-added tax. According to a report released by the MIT in July 2017, Vietnam needed at least 267,850 cubic meters of ethanol for mixing E5 gasoline. A price fluctuation worth several hundred dong a liter of ethanol would seriously affect profit of enterprises.

Another problem relates to the supplies of materials for ethanol production in Vietnam. Currently, cassava is the only material in use. Yet cassava is also the input material of other industries as well as an export of Vietnam.

The continuous hike of cassava price since early this year partly stems from the higher demand of ethanol factories in China. According to the Export-Import Department under the MIT, in the first half of this year, some 1.47 million tons of cassava were exported, 90% of which went to China. This raw material earned Vietnam US$543 million, a drop of 26.4% in volume but a rise of 8.9% in value compared with the same period last year. Currently, export price of cassava has climbed by 80% year-on-year.

Given such a high price, ethanol production costs are also high and the support for ethanol manufacturers based on technical barriers could not last long. The core of the issue is Vietnam has to find other sources of materials available in large volume and at low price to replace cassava.

Theoretically speaking, no policies are in place to force biofuel mixture enterprises to buy domestic material ethanol instead of importing it. However, in reality, a directive issued by the MIT in September 2017 stated that active cooperation with the Ministry of Finance (MOF) must be maintained to keep the price of imported material ethanol E100 from five to seven percent higher than that of domestic counterpart. To put it differently, even in the context that the price of domestic material ethanol is rising as currently is the case, it’s not easy at all to increase the volume of imported counterparts.

More support in line

That the MOF has revised some articles of the Law on Value-added Tax (VAT), which stipulates that the VAT rate for E5 RON 92 gasoline is at 8% as of the first of January 2016 (versus the 10%-rate of normal gasoline), means a 2% tax refund has to be made for the volume of E5 gasoline which has been sold ever since. According to reports, the value of the tax refund in 2016 is insignificant. However, in 2017 and 2018, it may be as high as US$750 billion. The ministry suggested that the refund should be made using the central State budget with a third going to Petrolimex. Given all these facts, the cost of E5 gasoline has not been adequately calculated.

As of early next year, the environmental protection tax imposed on E5 gasoline will remain at the current rate (VND3,000), or VND1,000 lower than that of other kinds of gasoline. The price gap between fossil gasoline and common ethanol fuel mixture will be widened to attract consumers.

All the above-mentioned measures have been in force to support E5 gasoline. Should consumers therefore hope that the price of material ethanol will be lowered to cut the price of E5 gasoline?

Such a hope will become reality only when the production costs of domestic ethanol become lower to be equal to those on the international marketplace.

This scenario will play out if two conditions are met. First, it depends upon whether Vietnam is able to find other sources of materials sufficient and cheap enough for the production of ethanol—at least equal to the prices offered by key players in the world. Secondly, more ethanol production plants must be set up in Vietnam for the sake of a healthier competition environment.

In the absence of either factor, the price of common ethanol fuel mixture will be lower.

SGT