The operator of Dung Quat Refinery, Vietnam’s sole operational such facility, has said it is losing customers and threatened to shutter operations thanks to an unfair tax policy, a complaint officials said is groundless.
Located in the central province of Quang Ngai, the facility processes crude oil into fuel products and is now meeting around 33 percent of the domestic fuel demand.
But Binh Son Refining and Petrochemical JSC (BSR), which operates the US$3 billion facility, said many of its customers may switch to buying from other ASEAN countries, whose products are now cheaper thanks to a tax cut taking effect since the beginning of this year.
Duty on gasoline imported from the ten-country bloc was slashed to 20 percent from 35 percent, whereas the rate for diesel oil went from 30 percent to five percent, as part of the roadmap to realize the ASEAN Economic Community.
The ASEAN members include Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Cambodia, Laos, Myanmar, and Vietnam.
Gasoline produced by Dung Quat, meanwhile, is subject to a 35 percent import tax, and 30 percent in the case of diesel oil even though it is domestically made, according to a special financial mechanism applied to the refinery, which was commissioned in 2010.
“Such disparity has sent many Dung Quat customers to consider buying fuel from other sources to increase business effectiveness,” BSR deputy general director Vu Manh Tung, told Tuoi Tre (Youth) newspaper.
Tung has signed a complaint submitted to the Ministry of Finance, saying the refinery may have to shut down due to such tax policy.
From now to the end of this month, Dung Quat will still be able to operate at full swing, but its customers are expected to stop sourcing fuel from the refinery starting May, Tung said.
BSR’s parent company, state-run oil and gas giant PetroVietnam, has also lodged a similar complaint to the finance ministry, saying the ASEAN preferential tax treatment has caused Dung Quat fuel to be more expensive than imported products, thus reducing its competitiveness right on home soil.
Pham Dinh Thi, head of the tax policy department under the finance ministry, said Dung Quat has no ground to claim that businesses will switch to buying fuel from other ASEAN countries.
Not all but only a small proportion of the products imported from the remaining ASEAN countries are eligible for the tax cut, Thi told Tuoi Tre on Tuesday.
In the year to March 10, Vietnam imported $410 million worth of fuel products from the ASEAN bloc, but only 0.08 percent of these, or $332,500 worth of such products, were subject to the preferential tax treatment, according to the official.
“The remaining $409 million, or 99.9 percent, had to bear the normal import duties,” he said.
“It is thus groundless to say fuel businesses will stop buying from Dung Quat and turn to the ASEAN market.”
Nguyen Hong Nga, deputy dean of economics at the Ho Chi Minh City University of Economics and Law, said the problem of Dung Quat is its poor cost management.
“The refinery does not have to pay import duty on its raw material as it uses crude oil exploited in Vietnam, and other expenses such as transportation, labor, and storage are also small,” he said.
“Their production costs are high because of their ineffective cost management.”
Dung Quat currently produces 140,000 barrels of oil a day, or 6.5 million tons a year. Once it produces 10 million tons of oil per year, Dung Quat will account for 50 percent of Vietnam’s fuel supply.
BSR reported VND150.41 trillion ($7.08 billion) in revenue in 2013.