Thursday , June 13 2024

Industry and Trade Ministry proposes allowing gasoline businesses to set retail prices

The government will no longer intervene in setting retail prices, but will allow enterprises to decide them, according to a new government decree on gasoline and oil trading.

According to prevailing regulations drafted by the Ministry of Industry and Trade, the government sets the base price as a basis for regulating retail prices of gasoline and oil, similar to the ceiling price for businesses to determine retail prices.

For example, if the government announces a retail price of RON 95 at VND21,154 (90 cents) per liter, enterprises will declare a selling price of no higher than VND21,154.

According to the Ministry of Industry and Trade, the base price is calculated using a fixed formula with the costs calculated based on average costs reported by enterprises over a fixed period. As a result, the price does not reflect the reality of each enterprise.

For example, gasoline and oil businesses will suffer losses when costs are constantly increasing, but they are not updated in the formula used to calculate the base price. Suffering bigger losses, they will fail to maintain commissions given to retailers in particular and distribution systems in general.

This is one of contributing factors to the recent unstable gasoline and oil markets.

To overcome this situation, the management agency proposed two options.

Option 1, regulating gasoline prices as at present, but correcting the base price formula by adding in some actual costs incurred by enterprises that have not been calculated, such as the domestic premium (the money paid to suppliers, equivalent to the profit of sellers).

Regulations on method and frequency of cost determination will be reviewed to ensure correct and sufficient calculation of the base price.

Option 2, the government will only publicize elements of the price, including the world price, the tax, the profit, and the use of the price stabilization fund. Based on these, enterprises will add business costs, shipping costs, and premium to determine and announce their own retail prices.

The enterprises will self-declare selling prices when changing them, and report them to the Ministry of Industry and Trade and the Ministry of Finance for supervision—not for seeking permission.

The Ministry of Industry and Trade proposed choosing Option 2 for the reason that it is necessary to bring gasoline prices closer to the market and to gradually reduce State intervention.

This option will also truly reflect all costs in gasoline prices, limit speculation and hoarding and encourage businesses to create a stable supply for the market.

“When wholesalers can decide their own business expenses, they will balance and maintain the commissions in the system in accordance with the actual supply and demand in the market, so the problem of commissions will be solved,” stated the ministry.

However, when businesses have the right to set retail prices, there will be many prices in the market, and in areas where there are not many gasoline and oil suppliers, especially in remote areas, high costs will arise, so people may have to buy fuel at higher prices.

Another new feature in the draft decree is that a distributor will be allowed to buy gasoline and oil from three wholesalers, instead of just one at present.

According to the Ministry of Industry and Trade, the new regulation will better serve distributors who operate in large areas; they can choose to pick up fuels from three wholesalers in three regions of the country.

For retailers, the ministry believes that the current regulation on permitting them to obtain fuel from only one supplier should be maintained to help control the unified price and quality of the gasoline and oil sold to consumers.

The management agency also proposed shortening the timeframe to regulate gasoline and oil prices from 10 days to seven days after considering recommendations from businesses and recent market fluctuations.

Many disturbances occurred in the gasoline and oil markets in 2022.

In addition to the impact from the world market, one reason for the local market’s instability is that wholesalers had to import fuel at high prices and sell at low prices, so they suffered losses; business expenses skyrocketed but they were not adjusted in time to the base price.

The local gasoline and oil market is currently stable. The total supply this year will increase by 10-15% against last year.

The Ministry of Industry and Trade has assigned wholesalers to import 25.9-26.7 million tons of gasoline and oil in 2023.

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