ASIA FOCUS

Globalisation at the pumps

Phan Thu Houng pulls up to a petrol station, her two children sipping Fantas in the back seat of a new BMW X3. Stepping out of the car, she's wearing a scandalously low-cut blouse and streaked blonde hair, a Nokia mobile phone in one hand and what appears to be an authentic Gucci bag in the other.

This is not Graham Greene's Vietnam.

Since authorities began liberalising the economy a decade ago, change has been rapid, the impact of which has been felt sharply in the past three weeks.

The most recent major event has been a controversial decision to remove fuel subsidies, so motorists for the first time will feel the full extent of the global energy pinch, with dramatic swings in crude and refined oil product prices.

"If the price of petrol goes up 1,000 dong [a litre], I won't mind it so much, but my family is very fortunate," says Mrs Houng, a perfect example of the stark dichotomy in Vietnam between the haves and have-nots.

"But, I know 1,000 dong (about 2.25 baht) is a lot to some people," especially in a country where the average daily wage is 15,000 dong.

The decision to remove government-controlled pump prices has been met with widespread trepidation, despite the fact that the 25 retailers currently operating are state- or majority state-owned.

The main consternation is possible collusion among the 25, which could potentially set prices artificially high. Public concern has peaked, forcing the Ministry of Trade to schedule an online Q&A session yesterday to explain the new policy and try to alleviate any fears.

"Many people are worried about this new step by the government, but I don't think there is much risk in it, because we've seen many similar kinds of changes in the last few years," said Do Gia Phan, vice-president of the Vietnam Standard and Consumers Association (Vinastas).

Even so, Vinastas, a consumer advocacy group, views the removal of fuel subsidies as necessary.

"The government is giving more power to the companies to set prices which is a positive step forward in decentralising the [economic] system," said Mr Phan.

He noted that when the government loosened controls on the telecommunications sector, there was a lot of talk about telephone bills rising, but in the end the decision helped drive prices lower as companies competed for subscribers.

The problem is that petrol prices are heavily dependent on unstable geopolitical conditions and have such a broad-reaching impact that many households and companies are cutting expenditures, waiting to see if the costs of other commodities from produce to steel increase.

On the other hand, the main advantage is that without having to support fuel subsidies, it frees up millions of US dollars a year in the fiscal budget.

According to Nguyen Tien Thon, head of the Ministry of Finance's price regulation department, the subsidies represented about 5% of the state budget annually - money could easily go to building new refineries and power plants, the latter of which are in dire need in a country facing shortages and blackouts.

Last year's fuel subsidy bill was 8-9 trillion dong (about $500 million). State-owned Petrolimex, which holds 60% of the local retail and fuel import market, says it loses more than $2 million a day from keeping pump prices artificially low.

The government is has also lowered the petroleum product import tax from 10% to 5%, which in the short term should curb any increase in gasoline prices.

Though Vietnam is a net exporter of energy commodities, it does not have the refining capacity to turn oil into engine fuel. The government last week reported that the Phuong Dong offshore oilfield, which is being explored by a consortium of local and foreign companies including ConocoPhillips and PetroVietnam, holds as many as 37 million barrels of crude.

Bangkok Post

Last Updated : Saturday April 21, 2007