Experts divided on petrol price hike

HCM CITY — Experts and policy-makers are divided on the need for this week’s increase in petroleum product prices and its possible economic impact.

Some question the need to raise the prices when more careful use of petrol would have sufficed, others warn of inflationary pressures while yet others assure the hikes are needed to ease pressure on oil supply.

The debate was set off when the Government put up retail prices of petroleum products by 4.3 per cent and 17.2 per cent this week following a relentless rise in world prices.

It increased A92 and A90 petrol prices by VND1,000 per litre to VND7,000 and VND6,000 respectively, kerosene by VND200 to VND4,850 and fuel oil by VND170 to VND3,570.

Deputy Minister of Finance Nguyen Ngoc Tuan said that the increase was necessary to trim the oil subsidy and achieve the gross domestic product (GDP) growth target of 8-8.5 per cent.

But he admitted this would add 0.29 per cent to the production cost of electricity, 0.16-2.84 per cent to cement, and 0.12-0.15 per cent to steel.

An official in the prime minister’s research team, Le Dang Doanh, also believed that the higher prices could benefit the country in the long run.

"This will force the Government to seek other energy sources and puts pressure on everyone to cut down on petroleum use," Doanh said.

A Ministry of Planning and Investment official, Nguyen Tu Nhat, warned that the influence of higher prices may not be apparent in the short run but will undoubtedly stunt GDP growth.

"It is hard to measure the impact at this time since we do not have figures," Nhat said. He pointed out that prices have been galloping since the beginning of the year and show no signs of slowing down.

In order to minimise the impact of the higher petroleum prices, the Government has ordered local the electricity and cement prices to be maintained at current levels, Nhat said. "Otherwise it would set off a chain reaction."

Effects on State firms

Dao Van Hung, general director of Electricity of Viet Nam, said some small power plants, operating on fuel oil and diesel, would see fuel costs increase by 4 to 5 per cent.

"We shall rearrange power generation schedules in ways that can economise the use of petrol and oil," he said.

Vina Kyoei, which has suffered huge losses in the last two months due to falling steel prices, has received another blow with the oil price increase, its deputy general director, Nguyen Trong Sang, said.

"Coupled with the oil price hike, the company will face a combined loss of US$2 million as it cannot increase selling prices."

Vo Si Dong, general director of the Bai Bang Paper Mill, said, "The price hike does not affect us much because we only use a limited quantity of fuel oil."

"However, pulp import prices have risen 30 per cent and the fuel price rise would now burden us."

Nguyen Tung Chau, general secretary of the Viet Nam Cement Association, and Le Quoc An, president of the Viet Nam Textile and Garments Association, shared Dong’s views, saying the fuel price increase would cause some impact.

The best solution to the fuel price problem is to absolutely economise on the use of petrol and oil rather than raising their prices, they said.

According to the national price watchdog, transport companies seemed to be the most concerned about the fuel price rise. Nguyen Van Nhoi, general director of the Ha Noi-based Transport Company 1, said that transport charges would increase at least 5 per cent.

"This is unfavourable for transporters as transport fees have risen by up to 30 per cent this year."

"But since they cannot increase prices in annual contracts, their profits will drop considerably," Nhoi said.

Besides, with transport companies facing fierce competition, passengers would not accept any rate increases, he said.

Bui Van Quang, president of the HCM City Goods Transport Association, also said the agency would not increase transport prices because of excess supply and tough competition from the railways.

Vehicle owners however stressed the need to raise transportation charges to reduce their huge losses.

In fact, they have increased fares on some routes like HCM City – Cuu Long (Mekong) River Delta by VND3,000 – 5,000.

The municipal taxi association estimated fares would go up by VND6,500 to 8,500 per km.

The Viet Nam Automobile Transport Association would discuss raising its cargo rates later this year, according to its president, Nguyen Manh Hung.

The Viet Nam Railway Corporation revealed it would not raise fares yet but could do so in future to compensate for its estimated loss of VND14 billion ($890,000).

Protecting consumers

To ensure that the interests of consumers are protected, the ministries of Trade and Finance have already issued some directives.

To avoid anyone capitalising on the price increases, they have asked provincial governments to keep a close eye on petrol prices.

But experts said until the ministries’ consumer protection policies prove effective, consumers are going to pay higher prices for not only transport but also other goods including food.

Doanh, also senior advisor of the planning and investment minister, quoted from a finance ministry report that the oil price hike would push costs up by 1.7 to 4.6 per cent.

Nguyen Chi Trung, from the Tran Chanh Chieu wholesale market in HCM City, also warned that prices may increase in two weeks as traders have to sign new transport contracts at higher rates. — VNS

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