1. How the recently announced fuel auction might affect fuel markets in Vietnam and will it resolve the shortage? Is this an effective long-term solution?
Information about the upcoming auction has slowed down the increase in fuel prices, so it will positively affect the entire fuel market. More specifically, the purpose of the auction of 100 million litters of gasoline is to have more supply for the market, resulting from the lack of supply at Nghi Son Refinery and increased imports of key enterprises are still coming. Therefore, the auction is just for the short term and does not completely resolve the shortage.
2. What else can be done to mitigate the impact of rising fuel prices on the Vietnam economy?
– Vietnamese Prime Minister decisively has directed government agencies to proceed some solutions to mitigate the impact of the increase of rising fuel prices as stated in the Dispatch No. 160/CD-TTg dated 22/2/2022 on ensuring the supply of fuel for the domestic market:
o Reducing taxes on fuels, specifically adjusting the tax policy for environmental protection for petroleum products. However, the tax rate on fuel price only accounts for 38-39% and fuel price in Vietnam is currently much lower than in other countries in the world, so it can lead to cross-border fuel smuggling, leading to the reluctance of the government towards this solution;
o Using the BOG Fund (Petroleum Price Stabilization Fund), thereby supporting fuel prices for businesses so that the market price in Vietnam is low compared to other countries;
o Proactively clarifying information to ensure alternative sources of supply. Avoid spreading fake news, overdoing it affects the general psychology of the people, leading to hoarding of goods waiting for prices to increase;
o Enhancing inspection and raise the fines for individuals and organizations that deliberately hoard fuel and wait for the price increase;
– Besides, the government can support people indirectly by reducing VAT from 10% to 8% or create a database of fuel consumption demand in each location at each time (normal and abnormal), as a basis for requesting key suppliers to supply enough fuel.
– However, all of these are only short-term solutions because Vietnam must follow the law of the market economy (when the world increases, it increases). Thus, if the government interferes too much, it will drag the economy back to the previous subsidy period.
Reviewed Materials
1/ https://tienphong.vn/can-thiep-giam-gia-xang-dau-se-keo-theo-nhieu-he-luy-post1417676.tpo
2/ https://moit.gov.vn/tin-tuc/thi-truong-trong-nuoc/bao-dam-cung-ung-xang-dau-cho-thi-truong-trong-nuoc.html
3/ https://thanhnien.vn/len-ke-hoach-dau-gia-gan-102-trieu-lit-xang-tu-nguon-du-tru-quoc-gia-post1431920.html
4/ https://moit.gov.vn/tin-tuc/thi-truong-trong-nuoc/thong-tin-dieu-hanh-xang-dau-ngay-21-02-2022.html
Legal Basis
1/ Law on property auction No. 01/2016/QH14;
2/ Decree No. 83/2014/ND-CP on Petrol and Oil Trading;
3/ Dispatch No. 160/CD-TTg dated 22/2/2022 on ensuring the supply of fuel for the domestic market.
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Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.