Bui Ngoc Bao, chairman of the Vietnam Petroleum Association. — Photo nhadautu.vn

The world oil price has increased while in Viet Nam, Nghi Son Oil Refinery has sharply reduced its capacity. Therefore, in the first months of 2022, there was a breakdown in the supply chain and a local shortage of petroleum on the domestic market.

Those are big challenges for the State to ensure the fuel supply and stabilise domestic petrol and oil prices.

Bui Ngoc Bao, chairman of the Vietnam Petroleum Association, speaks to Vietnam News Agency about those issues.

The world oil price has increased in the first months of 2022. What are the main causes of this situation?

The world petroleum market saw great fluctuations in oil prices at the end of 2021 and the first months of 2022.

Most of the countries and economic centres in the world started the path of opening up and recovering their economies after a period of fighting against the COVID-19 pandemic, so the demand for petrol and oil has been gradually increasing. That is one of the major factors making the oil price rise.

The Organisation of Petrol Exporting Countries and its allies (OPEC+) have accepted to increase output by 400,000 barrels per day, but the demand for fuel still continues to rise, according to experts.

There are many other factors affecting oil prices. European countries lack energy sources, including electricity, coal and gas. Especially, fuel demand increases sharply in winter, causing oil prices to rise.

The conflict between Russia and Ukraine is also one of the main factors affecting the global oil price.

The world oil price is forecast to undergo many fluctuations this year, depending on the supply and demand situation, the conflict between Russia and Ukraine and the Western sanctions against Russia due to this conflict.

The market is waiting for whether those sanctions will affect Russia's oil exports. The US has announced it will limit oil imports from Russia. That has a negative impact on oil prices.

What is your forecast for the domestic petrol market in the second quarter of this year?

Viet Nam started to recover socio-economic development after the pandemic, so the demand for petrol and oil has gradually returned to pre-pandemic levels.

Therefore, with the strong increase in the global oil price affecting the domestic market, the Ministry of Industry and Trade has solutions to meet domestic petrol and oil demand, which is expected to increase by 20 per cent for implementing the economic development goals. The domestic petrol and oil traders are requested to increase imports due to the shortfall in domestic production.

The Government has assigned 10 major enterprises to increase petroleum imports in the second quarter to supplement fuel supply for domestic economic development. Therefore, in the second quarter, the State will basically ensure enough petroleum supply for production, business and social activities.

To ensure the petrol and oil supply and stabilise the prices of those products on the domestic market, many solutions have been proposed, such as increasing petrol and oil imports or reducing taxes. Are these the right solutions at present?

In terms of ensuring petrol and oil supply, the Government's direction on increasing imports is essential. These imports are based on the forecast of the domestic petroleum demand from State agencies as well as enterprises.

For petrol and oil prices, when the global oil price has surged, the State considers tax adjustments to ensure that domestic petrol and oil prices are least affected.

However, the State needs to have stronger policies to ensure that petrol and oil prices do not fluctuate too much. It also should have flexible and timely solutions in the context of the oil price increasing every day.

In addition, to ensure petrol and oil supply and price stability, State management agencies need to strengthen market management measures and monitor enterprises in implementing the listed petrol and oil prices.

These solutions need to be implemented synchronously. Moreover, there are programmes on saving energy and petrol for domestic consumers.

Petrol and oil prices in Viet Nam have increased but are still lower than the global prices due to the price stabilisation fund. Is this an effective tool in the current context?

When the global oil prices fluctuate, the price stabilisation fund is used to control the increase in petrol and oil prices in the domestic market. But the stabilisation fund is mainly to help the petrol and oil prices not increase suddenly over a certain time, but it is not the fund that stabilises those prices for a long period.

Because in 2008 when the global oil price was up to $147 per barrel, the State had to compensate for the losses of the petrol and oil traders by up to VND23 trillion.

Therefore, for a long time, Viet Nam has aimed for domestic gasoline prices to approach the market mechanism.

What does the Viet Nam Petroleum Association propose to ensure the supply and petrol price stabilisation in the domestic market?

To ensure the petrol and oil supply, the best way is to maintain stable domestic production meeting 70-75 per cent of the domestic market demand.

On the other hand, major petrol and oil trading enterprises need to have a long-term plan for imports because importing those products is not easy at present.

Russia is a major oil exporter in the world, especially for diesel. The sanctions will affect the delivery of goods and payments when Russia exports oil. Therefore, the domestic importers need to plan carefully.

However, with a total import volume of only about 30 per cent of the demand, Viet Nam is not likely to face a supply crisis.

Regarding the prices, the State management agencies need to study a number of tax-related mechanisms. Viet Nam has many trade agreements prioritising petrol and oil supplies from ASEAN countries with preferential tax rates.

But this makes Vietnamese enterprises not find new import markets, while ASEAN countries have limited oil resources, pushing the oil price up.

Therefore, the association proposes the Ministry of Finance to study the reduction of the most-favoured-nation tax (MFN) for petroleum products in 2022 to the rate equal to the preferential tax rate for ASEAN countries so that Viet Nam can have more fuel supply.

For the petrol price, the association recommends that the Ministry of Finance should set a fixed number for some kinds of tax relating to petrol and oil imports that is the same as the environment tax instead of a percentage at present like import tax at 8 per cent. That is used in many countries.

Because when maintaining the percentage of tax, the higher the world price, the higher the tax calculated in the selling price of gasoline, leading to a sharp increase in domestic petrol and oil prices.

Domestic petroleum companies now have almost no cost for price insurance as well as risk reserve fund. That's why many businesses do not have a source to cover their losses and all depend on loans from banks.

In fact, with the current performance of the petroleum market, banks are also very hesitant to give loans for the businesses that have incurred losses due to petroleum trading.

The State management agencies must pay attention those issues. The current oil price has doubled compared to last year, creating negative impacts on the sustainable development of the business. — VNS