Experts have been baffled by losses of Binh Son Refining and Petrochemical Co Ltd's (BSR), which operates the Dung Quat Oil Refinery, losses as the project received cost and subsidy advantages, said Masami Kojima from the World Bank. — Photo bsr.com.vn

Kojima told a conference on reviewing energy price subsidies in Viet Nam held in Ha Noi on Tuesday that the economic affects of subsidies were not always negative. There are still some popular subsidies in countries with a strong energy market.

For example, subsidies in electricity consumption for people in rural areas and those in urban areas are seen in the EU and North America.

Subsidies also promote the application of renewable energy resources, she said.

However, one of challenges for policy makers was to ensure that subsidies do not harm the market in the long-term.

She added that Dung Quat Oil Refinery is the only oil refinery plant in Viet Nam using local crude oil.

The refinery can compete due to its scale and effective production. In addition, the refinery has been using local crude oil in the country which should have lower production costs than others in Singapore and South Korea. Those countries had to pay to import crude oil and export refined oil.

The refinery has also been given preferential corporate income tax and retained the so-called preferential value, in accordance with the import tariff (3 per cent for petrochemical products, 5 per cent for LPG and 7 per cent for petroleum products).

The refinery enjoyed corporate income tax of zero per cent for the first four years of operation, 5 per cent in the following 9 years and 10 per cent instead of the common 20 per cent in the next 17 years.

The subsidies have been a remarkable support for the refinery. However, the refinery has faced financial difficulties. If the refinery did not retain the preferential value, its total accumulated losses would be more than VND27.6 trillion (US$1 billion) in 2010-14. The subsidies helped reduce losses to VND1 trillion ($500 million) in the period.

She said that the Government should analyse the financial effectiveness of the refinery.

A representative of the National Oil and Gas Group (PetroVietnam) said the refinery has transportation advantages. However, they still faced difficulties as they can't decide prices themselves.

Viet Nam's market is quite complicated, subsidies should be based on economic, energy security and environmental development criteria, he said.

A representative of the General Directorate of Energy said some of the World Bank's data had not been updated.

He said Viet Nam had put efforts into increasing its energy prices.

If we do not increase petroleum prices, our State budget could not cover the losses, the coal selling prices to the electricity sector has also been higher, the representative said.

The World Bank report aimed to support the Vietnamese Government to have better knowledge of energy subsidies as well as the affects of energy subsidy reduction. — VNS