Backward from current regulations?

The Ministry of Industry and Trade is drafting a new decree on petroleum, replacing previous decrees such as Decree 83, 95, and 80 on petroleum trading.

The draft proposes a new mechanism to manage gasoline prices. Accordingly, businesses are allowed to decide on gasoline prices but not higher than the prescribed ceiling (maximum price).

The ceiling price is calculated based on the principle of adding costs such as source creation, standard business costs, standard profits and taxes.

According to the proposed mechanism, the State agency will announce the component costs, then the enterprise will calculate the ceiling price itself, instead of the current state agency announcing the ceiling price.

Mr. Nguyen Tien Thoa - former Director of the Price Management Department ( Ministry of Finance ) said that the above proposal does not have any breakthrough or innovative regulations on prices. Because, the draft regulation stipulates that enterprises are entitled to set prices not exceeding the ceiling price, but must calculate according to the price constituents guided by the State, and the method of calculating the cost of the price constituents is determined by the State.

Thus, even if the current management method of the State announcing the base price as the basis for enterprises to set prices is replaced by the State not announcing prices but announcing costs for enterprises to set prices, the nature of the State's direct intervention in the market through price ceilings, including market costs, will not change.

Mr. Thoa even said that the new proposal is "regressive" compared to current regulations. In that, the Ministry of Industry and Trade has not announced the price forming factors, so businesses have not been able to decide on price announcement.

Enterprises only have the responsibility to calculate the total cost of price formation that has been prescribed by the State to form their own price.

"These are provisions that contradict the Law on Prices when the Law on Prices stipulates that gasoline is not a commodity whose price is determined by the State but is a commodity whose price is determined by enterprises according to the market price mechanism.

If the State has regulations on maximum prices, it will only intervene when implementing price stabilization, not just imposing them continuously even when the market is developing normally as in the draft decrees," said Mr. Thoa.

From a business perspective, some traders are concerned that the new regulation giving the right to wholesale traders to decide prices will create a monopoly for large enterprises.

"The petroleum market share is currently dominated by state-owned enterprises Petrolimex and PVOil, so even though there are nearly 40 petroleum stations, it is still difficult to have many different competitive prices for the market because the stations with market share will be "anchored" to the prices of the big stations," a trader worried.

To avoid monopoly and abuse of dominant position to compete unfairly in the market, some traders believe that there should be specific regulations on profit margin compared to input cost as prescribed by the Ministry of Industry and Trade.

Proposal to allow wholesale traders to set wholesale prices at level one

Speaking to Lao Dong, Mr. Nguyen Xuan Thang - Director of Hai Au Phat Petroleum Company Limited said that from the conference to build Decree 83, 95 to 80 on petroleum trading, it seems that the content of the decrees are all built based on the interests of petroleum wholesale enterprises. If the wholesale enterprises decide on retail prices themselves, it will be "like a tiger growing wings".

This can lead to consequences such as retail businesses being squeezed for discounts, having costs appropriated and benefits not being distributed according to regulations; making the petroleum market chaotic, unfair and prone to local disruption.

Therefore, Mr. Thang proposed allowing wholesale traders to set the first-level wholesale price; allowing distributors to set the second-level wholesale price and retail price; allowing gasoline retailers to decide on retail prices.

"In case the State regulates retail prices, I propose that the domestic business costs and profits of all three stages be 3,000 - 5,000 VND/liter and the State issue a specific, clear, and transparent division ratio for the three stages by means of a supplementary circular replacing Circular 103 guiding the method of setting up, spending, using, and managing the Petroleum Price Stabilization Fund, or specific regulations in the new decree," said Mr. Thang.