Vietnam - Behind the red line

At a glimpse, they are deep in the red, incurring losses amounting to trillions of Vietnam dong in this year’s first half by selling oil products at subsidized prices to lend a helping hand to the Government’s drive to fight inflation and restore stability. It is just half of the truth, however.

The Finance Ministry in a press conference in Hanoi this Monday reviewed the performance of the State-owned oil traders mandated by the Government to ensure fuel supply for the economy. The meeting was held after outcries by the oil traders over huge losses they incurred, seen as a precedent for their move to ask for a price hike. Figures given at the press briefing, meanwhile, shed light on the real picture of State monopoly in this sector, which is said to be not as dreary as lamented, according to local media.

Petrolimex as the dominant oil trader claimed to have lost over VND1.8 trillion, or nearly US$85 million, in this year’s first half, attributing the loss to the subsidized price controlled by the State. Other oil traders said they were in the same boat. Numerous stories published in the local media, however, question the real nature of such losses following the Finance Ministry’s figures, which pinpoint that the losses were caused by ballooning operational costs.

As per the prevailing regulation, the operational costs for all State-appointed oil traders shall not exceed VND600 per liter or per kilo of fuels, including commissions for sales agents and other business expenses. However, certain traders had announced the costs as high as VND1,200, says Tuoi Tre, citing the ministry’s figures.

Citing experts and market observers, the newspaper says Petrolimex, which holds a market share of some 55%, has incurred losses due to its fishy “transfer pricing.”

Sometimes, Petrolimex offered a commission of only VND200 a liter, but the amount at other times shot up to as high as VND860 a liter. Tuoi Tre says oil prices were not lowered according to the global price this year, as Petrolimex managed to raise the commission to its agents and distributors, stripping consumers the right to enjoy lower prices. Since Petrolimex holds controlling stakes in several distributors and own thousands of agents and filling stations, profits at such second-tier traders have surged, and part of the sums is later returned to the giant oil trader.

Vuong Hong Ha, head of the corporate finance department under the Finance Ministry, is quoted as saying in the newspaper that by claiming huge losses, Petrolimex and other oil traders can avoid taxes payable, while they still earn big bucks.

Le Hoang Hai, deputy director of the corporate finance department, asserts that State-owned traders are earning profits for all oil products, not to mention the approved profit of VND300 for each liter of oil sold on the market. “Since oil traders always complain about losses, the finance ministry wants the public to see the reality whether they are profitable or not,” he notes.

Hai refuses to conclude whether the oil traders have made use of any transfer pricing tricks, but says “there are signs of transfer pricing” to remit profits for their distributors and agents.

Vnexpress also mentions the suspicion over the transfer pricing tricks at Petrolimex and other oil traders, saying they have been earning good profit by comparing the import price and the retailed price. The online newspaper in another angle even criticizes Petrolimex for failing to focus on its core business, as the corporation has invested some VND1.3 trillion in other spheres such as banking, insurance, real estate and securities.

Similarly, Phap Luat quotes Nguyen Anh Tuan, deputy head of the Price Management Department under the finance ministry, as ascertaining that oil traders obtained a profit of VND780 per liter of petrol retailed. “The Finance Ministry bases its calculation on customs figures to assert that Petrolimex earned a profit of VND780 per liter of oil products it sold,” he comments.

Regarding the loss of VND1.8 trillion claimed by Petrolimex, Vietnamnet calls it a “theatrical play.” The news website also refers to conflicting figures at Petrolimex unveiled by the auditor as well as related State agencies to suspect the truth behind the corporation’s business performance figures.

Audited financial statements announced by the consulting firm Deloitte show that the oil trader earned a hefty profit of over VND4.3 trillion between 2008 and 2010, including over VND3 trillion of profit from oil trading, according to Vietnamnet. Meanwhile, a report given by the Minister of Industry and Trade at the National Assembly last month showed that the company suffered losses from oil trading in the given period.

In a sarcastic tone, Tuoi Tre comments that all the oil traders prefer to have losses rather than profits, and calls for transparency in oil trading by timely releasing information regarding their business performance.

Behind claims of losses, there are untold stories about the real oil trading business. Behind the scene, there are suspicions over “false losses and real profits,” and possibly there are also trade frauds. Minister of Finance Vuong Dinh Hue, in a meeting over oil trading, bluntly says that “if necessary, I will unveil frauds in oil trading,” according to Vietnamnet. The formal losses as claimed are just half of the truth.

Son Nguyen - The Saigon Times Daily

Business & Investment Opportunities

YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Consulting, Investment and Management, focusing three main economic sectors: International PR; Healthcare & Wellness;and Tourism & Hospitality. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programs. Sign up with twitter to get news updates with @SaigonBusinessC. Thanks.