According to Hoang Van Cuong, Member of the National Assembly’s Finance and Budget Committee, a Limitation Remains: Although the State Controls and Sets Prices, Prices Must Still Follow Global Markets, Because High Import Prices Require High Domestic Prices, and Prices Can Only Be Reduced When Market Prices Fall

Deputy Prime Minister Le Minh Khai recently assigned the Ministry of Industry and Trade to lead a review and study of the establishment of a petroleum exchange, in coordination with relevant ministries and agencies. What benefits could establishing a petroleum exchange bring? What are the views of the stakeholders?

To regulate the petroleum market, the Government has made considerable efforts to manage and stabilize petroleum prices using three tools: the base price, tax adjustments (tax reductions when necessary), and the price stabilization fund. These measures have produced fairly positive results.

However, according to Hoang Van Cuong, Member of the National Assembly’s Finance and Budget Committee, a limitation remains: although the State controls and sets prices, prices must still follow global markets, because high import prices require high domestic prices, and prices can only be reduced when market prices fall.

When the State controls and sets prices for petroleum businesses, there may be situations in which businesses cannot secure the profits they have factored into their operations, resulting in adverse consequences.

Hoang Van Cuong said: “Market selling prices must be based on the base price administered by the State, with an adjustment announced every seven days.

Those market selling prices are administered by the State. If price controls are imposed too heavily and businesses are no longer profitable, they will naturally find ways to circumvent them. We have seen periods recently when some outlets announced that they had run out of petroleum and stopped selling.

If a low price is imposed that causes businesses to operate at a loss, they will stop doing business. These are adverse consequences that harm both consumers and business operations.”

After the Government issued a document directing the Ministry of Industry and Trade to study the establishment of a petroleum exchange to increase openness and transparency and address recent instability in the petroleum market, the Domestic Market Department of the Ministry of Industry and Trade organized a workshop to discuss establishing the exchange.

Economist Assoc. Prof. Dr. Dinh Trong Thinh believes that establishing a petroleum exchange would help protect the interests of both buyers and sellers and, in the immediate term, help keep petroleum prices at the lowest possible level relative to global prices. Retail businesses would also gain a position comparable to that of primary petroleum traders and other traders.

Thinh further explained: “On an exchange, a business can buy from anyone offering a reasonable price, changing the positions of the parties involved. It would also make petroleum trading clear, open, and transparent in terms of quantity, price, and quality.

For the State, petroleum trading conducted in this way would clearly provide relatively comprehensive figures for building a petroleum database, while allowing appropriate direction and intervention in line with state management requirements. This would ensure the State’s direction of the petroleum market while also ensuring that petroleum trading runs smoothly, safeguarding energy security and preventing supply disruptions.”

Bui Ngoc Bao, Chairman of the Vietnam Petroleum Association, said the “bottleneck” in all Decrees on petroleum trading to date remains administrative management mechanisms, particularly those governing prices. It is time for a mechanism to identify what belongs to the market and return it to the market for businesses to decide, creating a competitive market: “Petroleum is a commodity closely linked to many other commodities and, in particular, to international markets. We believe that future management should ensure oversight of overall price levels to prevent major impacts, or use fiscal policies to respond when global prices have an excessive impact. Otherwise, we should let the market operate according to market principles. Once there is competition, the resulting prices will benefit consumers.”

Meanwhile, according to Nguyen Ngoc Quynh, Deputy General Director of the Mercantile Exchange of Vietnam (MXV), the Ministry of Industry and Trade authorized pilot trading of products such as crude oil and natural gas on MXV in Vietnam from May 2020 to May 2024.

With the Ministry of Finance yet to introduce policies on accounting systems for businesses trading on the commodity exchange in general and petroleum businesses in particular, Nguyen Ngoc Quynh believes that establishing a petroleum exchange requires a thorough and comprehensive assessment. Global prices currently account for the largest share of petroleum costs, at up to 65%, with taxes and fees making up the remainder.

Meanwhile, the country has only two petroleum producers, with the rest of its petroleum imported: “In my view, establishing a petroleum exchange requires careful study of its model, trading methods, and operating mechanisms; we should not rush. Even for a general commodity market, establishing a centralized exchange requires considerable time, effort, and careful consideration. For petroleum, it is even more difficult.

This is because petroleum is a distinctive commodity tied to national energy security. To establish and operate a petroleum exchange effectively and efficiently, meeting its stated goals and purposes, I believe we need time for research, assessment, and careful consideration, as well as consensus and determination from the Government and relevant ministries, departments, and agencies.”

Economist Assoc. Prof. Dr. Dinh Trong believes it is necessary to stipulate the responsibilities, obligations, and powers of each market participant. Relevant authorities must also clarify regulations on deposits, fund contributions required for market participation, and exchange fees to ensure transparency.

Therefore, for the immediate future, the petroleum exchange should be understood as an exchange for physical commodities. Only in the longer term, once the petroleum market has achieved stable development, should trading in contracts be considered: “In the long term, we believe that once the petroleum market has developed, trading in forward contracts, options contracts, futures contracts, and swap contracts could be considered. If the market develops further, we could also allow foreign suppliers to participate as market players.

Of course, international connectivity through other forms could take place at different levels. For the immediate future, however, we believe this exchange should primarily be a place where the two refineries, 38 primary petroleum traders, more than 300 other traders, and representatives of the more than 17,000 petroleum business establishments currently on the market can meet to buy and sell petroleum more freely and at appropriate prices.”

According to experts, establishing a petroleum exchange would help bring transparency to hidden aspects of primary petroleum traders’ business operations, help break the monopoly of large enterprises, and make the market operate more efficiently. However, implementation methods and conditions for participation in the exchange must be carefully considered to protect the interests of participants and consumers and ensure national energy security.

Nhu Ngoc – Thuy Linh /vovgiaothong.vn

Link: https://vovgiaothong.vn/newsaudio/lap-san-giao-dich-xang-dau-co-loi-ich-gi-d40053.html

This is an automated translation. If you notice any errors, please contact the Department of Communications, National Economics University at phongtruyenthong@neu.edu.vn.