INTRODUCTION

Petroleum is an essential source of energy, a prerequisite fuel for many industries influencing the development
of each nation. Vietnam is one of the few exporters of oil, but also imports nearly 70% of petroleum products. In
a long period, Vietnam's petroleum market was almost free of fluctuations or crises or it could be said that
Vietnamese petroleum consumers was out of fluctuations of the international market. However, recent years, the
economy and consumers in Vietnam have been repeatedly exposed to the effects of price increases or poor quality
of products from suppliers by some reasons.

The global economic integration process in Viet Nam is deepening, widening and demanding the integration of
both the government and the petroleum business in Vietnam to be more realistic and objective. For the future
development of Vietnam's petroleum market in the period of international economic integration.

In order to have a deeper insight into this matter and to give more valuable solutions, I chose the subject of term
paper, namely: “Proposal to Vietnamese government about stabilizing the domestic petroleum market, thus
contributing to ensuring social security and sustainable growth”. The term paper consists of five chapters:
Chapter 1: The current status of petroleum market in Vietnam
Chapter 2: Causal analysis of the current status
Chapter 3: Related consequences to certain interest groups
Chapter 4: Propose key solutions to the government

1
Chapter 1. The current status of petroleum market in Vietnam

1.1. Mainly imported

Petroleum products in Vietnam are currently supplied from
two main sources: Mostly 70% from imports and the rest
from Dung Quat oil refinery (from July 2009) (Figure 1).
From the beginning of 2018, Malaysia is surpassing
Singapore and South Korea, becoming the largest supplier
of petroleum to Vietnam at US $ 415 million in January and
February.

1.2. Competitive petroleum market is still far away

In general, the petroleum market in Vietnam has been competitive, considering as the increasing number of fleets,
discounting races to attract general agents and agents;
the large number of petrol stores and the involvement
of domestic private investors. However, in fact, it
seems be no chance for real competition.
Currently, there are about 11 state-owned imported
enterprises (SOEs) designated by the government, but
only two of the Ministry of Industry and Trade own
more than 72% (Petrolimex 60% and Petec 12%)
(Figure 2). The remaining enterprises belong to the line agencies of the ministries, provincial People's
Committees, but the market share is not large and facilities are not in line.
The market has been opened since 2006 calling for investment by foreign businesses. There are competitive
pressures from foreign businesses to local firms, but there are still not many positive signs. For example, Idemitsu
Q8 opened its first store in Hanoi with the image of the Japanese general manager, who was standing under the
rain bowing to buy petroleum has attracted the attention of a section of consumers and the press while The more
important things are convenient location, time saving. Next maybe the factor of serving.

2
1.3. Petroleum price has intense volatility, sometimes against the trend of world price
Since late 2009, domestic petroleum prices have been operating under the market mechanism managed by the
State.

However, because gasoline is a commodity

subject to the management and price stabilization
of the government, the increase or decrease of
petrol prices in the country sometimes not
correspond to the world trend.. Domestic petrol
prices are burdened with so much tax, so even if
world prices fall deeply, domestic petrol prices
will remain unchanged or fall. (Figure 3)

1.4. Appearance of low quality petrol

In recent years, consecutive cases from acetone petroleum, A83 petroleum with higher sulfur concentration
allowed, suspected of petroleum methanol showed that the quality of petroleum related to machinery industry,
vehicles and environmental pollution have occurred continuously and caused much damage. There was some car
fire occurred in succession, suspicion of petroleum set up but the entry from the quality management and the
petroleum market is very slow.

3
Chapter 2. Causes of the current status of petroleum market in Vietnam

2.1. Due to the characteristics of the product

The quality of the fuel is only known when used, and the previous evaluation analysis is very difficult to perform
as often as it requires specialized equipment. Although the government has issued regulations on conditions of
petroleum trading as well as quality of petroleum, so far, many violations still exist.

2.2. Self-supply does not meet demand

Vietnam does not have enough oil refinery, all crude oil exploited for export. All petroleum needs of the domestic
market must be imported. Due to this situation, Vietnam's petroleum market is fully dependent on the world
petroleum market.

2.3. Due to government’s policies

2.3.1. Complex in industry management
The overlapping management system does not allow close coordination between sector management and
territorial management
2.3.2. There are many inadequacies in state intervention policies
Price and tax policy are not flexible
Base prices will be established to form the "retail price of petrol" equal to CIF price plus many additional taxes
and are all set to increase:
Base price = CIF price + Import tax (16.22%) + Excise tax (10%) x Foreign exchange + Value added tax (10%)
+ Business cost norm (1,050 VND/l) + The level of deduction for the price valorization fund (VND 300/l) + Norm
profit (VND 300/l) + Environmental protection tax (VND 3,000/l) + Taxes, fees and deductions other according
to regulations.
Insides, CIF price = world price + insurance premium + freight to Vietnam port
About retail prices almost apply one price for all retailers proving that the petroleum business is not really operated
under the market mechanism.
The promulgation of the petrol price takes a long time because it’s decided by the Prime Minister on the basis of
a consensus proposal between the Ministry of Commerce, the Ministry of Finance and the government office.
The subsidy policy is unclear
The allocation of quotas has not yet been made public, and the policy on loss compensation has not been effective.
The price subsidies, compensation for losses to enterprises have not implemented strictly according to the
principle of distribution, separated by the stage of import, storage, transport, retail distribution.

4
Chapter 3: Related consequences to certain interest groups

3.1. Affects to the consumer

Poor quality petroleum that endangers consumers. Abnormal increases in petrol prices also cause many confusion
for consumers.
Especially, petroleum oligopoly reduces social welfare. The pricing of petrol is determined by the monopoly price
as a major loss for the government, other manufacturing sectors and families (Figure 4).
In perfectly competitive market, the
business will produce and sell at MC = MB
= MR. Then the enterprise will produce at
A (Q0; P0). MC cut the MR at C,
corresponding to the output level Q1 but
according to the law the enterprise will sell
at B with the price P1 → B (Q1, P1). We
have an ATC that is the average cost that
an enterprise must pay when it produces at
the Q1 output the superfluous profit of the
monopolist will be the area of P1BMN.
Q0 is socially efficient because the margin
benefit is MB = MC.
When production is reduced from Q0 to Q1, the cost of production is reduced to dtACQ1Q0 while the lost benefit
for consumers is dtABQ1Q0.
On the other hand, dtABQ1Q0> dtACQ1Q0.
Thus, the social welfare loss caused by monopoly is ΔtW = dtABC.

3.2. Affects to the government

The government has suffered losses in both areas. In the field of budget revenues and expenditures, the state has
to reduce the import tax when the petrol price rises and at the expense of the petroleum trading enterprises. In the
field of macro management to fight inflation, balancing budget revenues and other macro-balance such as import-
export, monetary policy also attracted.

5
3.3. Affects to enterprises:
When the world price of petroleum surge suddenly will cause enterprises to import petroleum at high prices but
cannot raise the price to consumers too high because if the increase is too high. Therefore, enterprises have to sell
at low prices and suffer. As petrol prices are about to increase, to ensure the supply of petroleum, petroleum
distributors will suffer losses at the point of purchase by the principal at higher prices while the dealers are still
in stock. The amount of petroleum at lower prices has been purchased at the price of petroleum has not increased.

3.4. Affect the relevant sectors as well as the entire economy

The fluctuation of petroleum may affect some related industries such as transportation, express delivery, fishing,
agriculture (coffee), gold, stock, etc.

When the price increases leading the supply for the whole market also change (Figure 5).
Initially the economy at the equilibrium point: E0 (p0; y0).
As the price of petroleum in the world increased. Domestic oil
prices also rose, while petroleum was the input of most
economic sectors. It led to increased production costs, lower
total supply and shift to the left (AS1). This puts pressure on
prices from P0 -> P1. From here it can be concluded:
- The new equilibrium economy is E1 (p1; y1)
- Product output decreases, unemployment rises, inflation rises

When petroleum price is reduced, GDP increases. In contrast, when petrol prices increase, the input cost of
enterprises also increase, enterprises increase their selling prices. Families spend less money while having to buy
at higher prices, thus reducing spending. As a result, the economy produces less goods.
The positive factor of rising petrol prices is in the long run. Petroleum is a finite fossil fuel that burns off
greenhouse petroleum. Increasing petrol prices will stimulate businesses to find cheaper alternative materials,
change technology to save more.
If the price of petrol drops for a long time, the machines that harness solar, wind, and waves will not be able to
sell. The company cannot sell the money cannot re-study; slowing down the development of this industry.
In the open economy, if a country has a higher gross revenue from oil sales than the total purchase, the increase
in petroleum prices is beneficial and vice versa.

6
Chapter 4: Propose key solutions to the government

4.1. Improve the state management mechanism

4.1.1. Separate of business functions from ministries and branches; implement centralized management
under one center
4.1.2. Improve the quota management mechanism
- Quotas are only allocated to those enterprises which have sufficient material facilities to receive large shipments
of 30,000 tons or more. Focusing on large-scale businesses with a scale of over 50,000 tons.
- Allocate quota by democratic way and public bidding
- Have the regime of binding and sanctioned when enterprises fail to carry out the import the quota as allocated
and the committed process
4.1.3. Improve the investment management mechanism
- Planning the system of petroleum port warehouses, general depots, centers, strategically located
- There should be a specialized agency responsible for granting investment licenses for the construction of boiled
petroleum projects.
4.1.4. Improve the mechanism of price, tax and subsidy policy
- Tax policies:
+ Should not raise taxes massively
Petroleum is essential commodity, so the price increase for petrol does not affect the total consumption of
consumers. In other words, if the policy objective to limit the environmental impact by limiting petroleum
consumption, the tax increase does not bring about significant effects. Instead, the government needs to reform
the tax system in a manner consistent with the orientation of state budget restructuring and the integration trend
is one of the priorities of the Ministry of Finance.
+ Change the purpose of the petroleum import tax as the main source of revenue for the state budget to promote
production and consumption orientation.
+ Provide a price bracket (FOB or CIF) of several prices (based on some criteria such as world price, time of
execution, number of imports per batch ...) for each item and the corresponding rates are the import duties payable
( Apendix 2).
+ Direct tax calculation
The Ministry of Finance should publicize import tariffs and charges related to petrol and oil products. Tariffs will
be set based on fluctuations in world oil prices, for example when the price of oil at $ 50-70 per barrel, the import
tax is 10%, if at 80-90 per barrel of import tax decreases to 8%
- Pricing policies:
Keep petroleum prices to avoid surging, surpassing the overall balance of the national economy.
+ Enhance price management by ceiling price

7
The government still has to control prices by the ceiling price (Apendix 1) with the import price of the next 15
days to calculate the base price. The current practice is still limited, subjective, affected by some factors outside
the market supply - demand when the time to calculate the price is too far, domestic prices sometimes does not
resemble the world price because of the use of the stabilization fund.
+ The government also needs to incorporate a policy of reducing production costs through the issuance of
standards for petroleum loss and reduction of input costs in the importation process, store, transport, wholesale,
retail, etc. in line with new technological advances
+ Encourage the reduction of import tariff by: long-term contracting, encourage FOB buying, large cargo capacity.
+ Reduce the cost of wholesale by: building upstream storage in each area, setting up new waste and depletion
norms suitable to each level of imported input.
+ Reduce retail costs by: building new freight losses instead of regulation 758, building new standards of loss in
retail, improve management regulations of agents.
- Subsidy policy
Appropriately use the Price Stabilization Fund: Only use that fund when world prices increase makes base prices
higher than current prices and the State requires enterprises to implement price stabilization; to curb price increase
or not increase the selling price, then at the same time with other financial instruments (flexible administration of
import tax), the Ministry of Trade has the official dispatch to enterprises to use the fund. The use of the fund is
not fixed but depends on the difference between the base price and the current selling price; economic and social
situation in the country (Appendix 3).
4.1.5. Complete the legal corridor: Strictly punish the violation of business ethics such as cheating,
smuggling, steal.
4.2. Improve the competitiveness along enterprises
Transform the oligopoly market model with a dominant firm into the Cournot-Nash model to increase competitive
abilities among enterprises. In this model, the oligarchs have a comparable market share. The government can
approach in two ways:
+ Split Petrolimex into two corporations. Then the petroleum market will have three companies with similar
market share. Petrolimex 1, Petrolimex 2, and PV Oil all occupy 30% market share. To be able to find a profit,
these three companies are forced to compete on price instead of clinging to a common price as today.
+ Set up barriers to control the expansion of Petrolimex's market share, while encouraging other petroleum
businesses to compete to expand their market share.
For example, it is possible for Petrolimex to always sell petrol at the price set by the Ministry of Finance (MoF).
Besides, the MoF allows other companies to sell competitively priced prices, which may be higher or lower than
those of Petrolimex.

8
Based on the price gap between small businesses and the standard price of the Petrolimex, the Ministry of Industry
and Trade will grant licenses to expand retail outlets to other small businesses at the corresponding level. With
this solution, after a certain time will appear one or two dominant companies and gain more market share. The
end result is that the market share of the oligarchs is about the same.
On the other hand, attracting foreign enterprises to be present in the domestic distribution market also creates a
healthy competitive driving force which forces every petrol and oil trading company to perfect and raise the
quality of its services to compete better and more efficient.
4.3. Increase in supply
- In the long run, the Government should take into account the possibility of importing crude oil, filtering to
supply output to other industries proceed to export (Figure 6).
- The government should establish or delegate the task of a
specialized agency to plan and evaluate the potential of
national energy resources. Its mission is to carry out research,
gathering and proposing strategic alternatives to the use of
national energy resources.

- Fast and scientific in the implementation of research

solutions, concluding the decision-making authority decision-
making strategy or finding alternative sources of energy.
+ Wind, solar, liquefied coal, hydroelectric power, ethanol,
non-fossil fuels
+ Develop biofuels and apply the ratio of bio-fuel to traditional fuels such as E5, RON 95, E10 over nationwide.
- Look further international cooperation such as strengthening the cooperation in the exploitation of sedimentary
basins in Venezuela, Cuba, Kazakhstan and Algeria.
- Improve the management of agents by stipulating that the agent can operate as a sole agent for one importer,
and the first importer must be responsible for quality to the end user.
- Building retail network in the border and coastal areas should ensure and supply the region's demand; Do not
permitted to carry out illegal cross-border transportation of petroleum.
4.4. Enhance protecting consumers by laws

9
 CONCLUSION

The tension in supply, demand as well as fluctuations in petrol prices are very important in Vietnam and around
the world because it greatly affects the factors in the economy. This term paper focuses on the current status of
the petroleum market in Vietnam, analyzes the causes and consequences and propose solutions to the
government.

In general, the petroleum market in Vietnam is facing many shortcomings. From the fact that the market is in
deficit, the price fluctuates and tends to increase, the oligopoly market puts pressure on many components of the
economy.

Therefore, the state should take measures to improve its own tax, price and subsidy interventions as well as
appropriate management methods to stabilize the domestic petroleum market, thus contribute to ensuring social
security and sustainable growth.

10
 REFERENCES
1. Phan Thue Rue - Chairman of Vietnam Petroleum Association (2017), Thực trạng xăng dầu hiện nay và
định hướng phát triển (Current gasoline status and development orientation), link:
http://petronews.vn/tin-tuc/nang-luong/18398/thi-truong-xang-dau-hien-nay-va-dinh-huong-phat-
trien.html
2. Minh Huu (2017), Thị trường xăng dầu Việt Nam thiếu tính cạnh tranh (Vietnam's petroleum market is
not competitive), link: http://baophapluat.vn/tieng-noi-da-chieu/thi-truong-xang-dau-viet-nam-thieu-
tinh-canh-tranh-335267.html
3. Sao Mai (2017), Tổng quan thị trường xăng dầu Việt Nam 2016 (Overview of Vietnam's petroleum
market 2016), link: https://vietnambiz.vn/tong-quan-thi-truong-xang-dau-viet-nam-2016-11485.html
4. Truong Bui (2017), Cởi mở thị trường xăng dầu (Open up the gasoline market), link:
http://forbesvietnam.com.vn/tin-cap-nhat/coi-mo-thi-truong-xang-dau-1662.html
5. University of Law and Economics, Thesis “Giải pháp quản lý và bình ổn thị trường xăng dầu tại Việt
Nam” (Measures to manage and stabilize the petroleum market in Vietnam), link http://doc.edu.vn/tai-
lieu/luan-van-giai-phap-quan-ly-va-binh-on-thi-truong-xang-dau-tai-viet-nam-42033/
6. Pham Nguyet Hang (2017), Lộ trình hiệp định ATIGA đến 2018 - Thách thức đối với các doanh nghiệp
Việt Nam (Roadmap from ATIGA to 2018 - Challenges for Vietnamese enterprises), link:
http://moj.gov.vn/qt/cacchuyenmuc/pldn/Pages/pho-bien-pl-doanh-nghiep.aspx?ItemID=23
7. Phuong Nhung (2017), Mở cửa thị trường xăng dầu?( Should we open the petrol market ?), link:
http://cafef.vn/mo-cua-thi-truong-xang-dau-20170522091305504.chn
8. Anh Nguyen (2017), Thị trường xăng dầu: Cuộc đua giữa 'nội' và 'ngoại' đến hồi gay cấn (Petrol
Market: The race between 'internal' and 'foreign' has come to a close), link: http://cafef.vn/thi-truong-
xang-dau-cuoc-dua-giua-noi-va-ngoai-den-hoi-gay-can-20171027142546644.chn
9. Ngoc Lan (2017), Bức tranh thị trường phân phối xăng dầu sẽ được vẽ lại (The picture of the gasoline
distribution market will be redrawn), link: http://www.thesaigontimes.vn/266651/Buc-tranh-thi-truong-
phan-phoi-xang-dau-se-duoc-ve-lai.html
10. Nguyen Huong (2017), Giá dầu thế giới tăng cao sẽ ảnh hưởng thế nào đến nền kinh tế Việt Nam (How
high oil prices will affect the economy of Vietnam), link: https://trithucvn.net/kinh-te/gia-dau-the-gioi-
tang-cao-se-anh-huong-the-nao-den-nen-kinh-te-viet-nam.html
11. VOV (2017), Xăng dầu và sức ép tăng thuế môi trường giảm thuế nhập khẩu Gasoline and the pressure
of increasing the environmental tax reduced import tax), link: http://baothuathienhue.vn/xang-dau-va-
suc-ep-tang-thue-moi-truong-giam-thue-nhap-khau-a42173.html

11
12. Decree 84/2009/NĐ-CP of the government on petroleum business, link: https://thuvienphapluat.vn/van-
ban/Thuong-mai/Nghi-dinh-84-2009-ND-CP-kinh-doanh-xang-dau-96242.aspx
13. Circulars Regulation on detailing of petrol and oil in petrol and oil operations (2015), link:
https://thuvienphapluat.vn/van-ban/Thuong-mai/Thong-tu-43-2015-TT-BCT-ty-le-hao-hut-xang-dau-
trong-hoat-dong-kinh-doanh-xang-dau-284265.aspx
14. Pham Tuyen (2016), Bất thường đường đi của xăng dầu (Abnormal path of gasoline), link:
https://www.tienphong.vn/kinh-te/bat-thuong-duong-di-cua-xang-dau-1048895.tpo
15. Ngoc An (2017), Đề xuất tăng một loạt thuế xăng dầu (Proposal to increase a series of petrol taxes),
link: https://tuoitre.vn/de-xuat-tang-mot-loat-thue-xang-dau-1315365.htm
16. Thesis “Tình hình biến động giá xăng dầu trên thị trường Việt Nam trong những năm gần đây: Nguyên
nhân và giải pháp” (Situation of petrol price fluctuation in Vietnam market in recent years: Causes and
solutions,), link: http://luanvan.co/luan-van/de-tai-tinh-hinh-bien-dong-gia-xang-dau-tren-thi-truong-
viet-nam-trong-nhung-nam-gan-day-nguyen-nhan-va-giai-phap-57095/
17. Ngoc An (2017), Đề xuất bảo hộ doanh nghiệp xăng dầu (Proposal for protection of petroleum
enterprises), link: https://tuoitre.vn/de-xuat-bao-ho-dn-xang-dau-1315761.htm
18. Nguyen Hai – Can Dung (2018), Petrolimex triển khai nhiều giải pháp trọng tâm trong năm 2018
(Petrolimex deploys more focused solutions in 2018), link: https://www.petrolimex.com.vn/nd/bao-chi-
viet-ve-petrolimex-va-xang-dau/petrolimex-trien-khai-nhieu-giai-phap-trong-tam-trong-nam-2018.html

12
 APPENDIX
Appendix 1. Government intervention by Tariffs Policy
Appendix 2. Government intervention by Price Policy
Appendix 3. Government intervention by Subsidy Policy

Apendix 1. Government intervention by Tariffs Policy

The state uses taxation as a form of income
redistribution, which restricts the production a type of
goods.
When the state levied t vnd on a unit of goods, the seller
doesn’t want to incur the tax so tended to quote higher
than the old price. The price rises, the supply curve
moves to the right t units. The supply curve changes to a
new equilibrium E2, the new equilibrium price is PE2,
and the new equilibrium quantity is QE2. At this time
PE2> PE1; QE2 <QE1 (price increases, output decreases)
(Figure 3). There will be two special cases:
- Elastic demand curve (lEDl = ∞): The seller must bear
the entire tax
- Non-elastic demand curve (lEDl = 0): Consumers incur a the
entire tax
Taxing makes corporate profits decrease. If the tax is too heavy,
it can cause harm to the society because the monopoly business
either transfers the tax to the consumer by raising the selling
price or discontinues producing market pressures.
There are two types of taxation: by output and not by output.

13
- Taxation by output: The taxable amount is the variable cost. After tax, only the consumer is harmed because of
the price increase, which reduces the value of the consumer
(Figure 4).
- Taxation not by output (or fixed taxes): are fixed costs. When
the state taxes, consumers are not affected by the constant price
and output, but corporate profits fall in line with the taxable
amount (Figure 5).

Appendix 2: Government intervention by Pricing Policy

To serve priority purposes, the state will have a policy of intervening directly or indirectly in the market, such as
pricing policies, tariffs and subsidies.
 Set ceiling price (maximum price - Pmax):

When the government sets the ceiling price Pmax, the

seller only supplies Q1< QE, but buyers want to buy Q2
(Q2> QE> Q1). Due to the large demand, the market will
lack a quantity of goods (Figure 1).

Q shortage = Q2 - Q1

When the government sets the ceiling price, consumers

will benefit, the number of products on the market will be
more.

14
Setting a ceiling price can be counterproductive because
if the price level is too low, the enterprise may lose or stop
producing, causing a shortage of goods.

Apendix 3. Government intervention by Subsidy policy

The state uses a subsidy policy as a redistribution of income or encourages the

production of a kind of goods or services.
When the state grants a unit of goods, the seller will provide a larger quantity
of goods at a lower price, the shifted supply curve is shifted to the right creating
a new equilibrium E2 with a new equilibrium price and quantity is PE2 and QE2.
At this time QE2> QE1 and PE2 <PE1 (price decreases, volume increases). There
are two special cases:
- Fully elastic demand at price lEDl = ∞: Producers are entitled to
subsidies (Figure 6)
- Inelasticity of demand at price lEDl = 0 thì: consumers are entitled to
subsidies (Figure 7)

15