The Ministry of Industry and Trade has submitted a proposal to the prime minister to amend the methods used to calculate petroleum retail prices.

Inadequacies have been revealed in the current petrol pricing mechanism

The ministry made the proposal in a recent report on the implementation of the Government’s Decree No. 84 on petroleum trading.

According to the ministry, adjustments to domestic petrol prices have been made slower than fluctuations in the world market. Retail prices are lower than imported rates, causing mounting losses to traders.

“Due to accumulated losses, traders were compelled to lower commissions to their agents, affecting fuel supplies and worrying consumers,” the ministry noted.

The ministry said some elements used to calculate petroleum prices are inadequate based on the country’s current circumstances as estimated business expenses for traders were calculated based on salary, materials and other financial expenses using 2009’s figures while all of these elements have increased considerably.

In order to deal with these inadequacies, the ministry proposed that the prime minister allow relevant ministries and branches to look through Decree No. 84 in order to make suitable supplements and amendments.

As a result, the Ministry of Finance (MoF) will inspect and make changes to elements that are used to calculated petrol prices.

Concerning this issue, Nguyen Tien Thoa, Director of the MoF’s Department of Price Management said Decree No. 84 focused on two major pricing solutions.

The first one triggers a price rise if imported petrol prices increase by 7% over a ten-day period. The second solution suggests that if imported price sharply increase, which affects the national socioeconomic situation and hinders the Government’s efforts to tame inflation, alternative tools will be utilised instead of raising prices.

Up to now, the implementation of the decree has not met expectations, he assessed.

Thoa noted that the prime minister had assigned the Ministries of Finance, and Industry and Trade to co-ordinate with petroleum traders to study amendments to the methods used to calculate petrol prices in order to make them more appropriate to the current situation and enhance the market competitiveness.

Regarding the latest petroleum price rise from April 20, Thoa said that the decision was made based on the increase in imported petrol prices over the past month, but not on the fluctuations in the world market in the most recent days.

Attention should be paid to the prices of petroleum products instead of crude oil prices, he said, adding that the price increase had been in accordance with the regulations set out in Decree No. 84.

The latest price hike has helped petrol traders recoup their business expenses.

The Ministry of Industry and Trade said that there were no regulations that stipulated how to offset losses incurred by petrol traders for taking part in the Government’s price stabilisation programmes. The use of the petrol price stabilisation fund has exceed the funds previously collected by over VND2.3 trillion (USD110.15 million). Traders now have yet to find a solution for their losses of over VND5 trillion (USD239.46 million).

The losses have been putting more pressures on traders whose loans have outstripped their equity.

Trader equity totalled VND9 trillion (USD431.03 million) in 2010 and VND14 trillion (USD670.49 million) in 2011, compared to their loans of VND17 trillion (USD814.17 million) and VND27 trillion (USD1.29 billion), respectively.