What needs to be done to improve the oil and gas price regulation mechanism?

DNHN - Economic expert - Dr. Nguyễn Minh Phong shares with the reporter of the Business and Integration Magazine regarding the draft Decree on oil and gas business, which is attracting attention from businesses.

Sharing his thoughts on this issue with the reporter of Business and Integration Magazine, economic expert - Dr. Nguyễn Minh Phong said that oil and gas prices need to be regulated based on a market mechanism with state management because oil and gas are commodities under price stabilization according to the Price Law (amended), which was passed by the National Assembly on June 19, 2023, with 92.91% of present deputies agreeing.

Specifically, Article 17, Chapter IV of the 2023 Price Law stipulates that goods and services in the price stabilization list must meet the following criteria: they must be essential goods and services; have a significant impact on socio-economic development, production, business, and the livelihoods of the people. The Price Stabilization List under the amended Price Law includes nine items: refined oil products; liquefied petroleum gas (LPG); milk for children under 6 years old; paddy, white rice; urea fertilizer, DAP fertilizer, NPK fertilizer; animal feed, aquatic feed; vaccines for livestock and poultry; pesticides; medicines listed as essential drugs used in medical facilities.

Oil and gas are the most sensitive commodities globally and in every country in the current oil civilization era. In the trend of globalization, global oil prices are directly and cumulatively influenced by many complex factors, especially production and circulation costs, supply-demand relations in the oil market, notably the economic development situation, and tensions in international political and military relations. At the same time, oil and gas prices in each country increasingly depend on global prices, as well as specific cultural and geographical factors in each region and country. In this context, as a country with large oil import volumes and transitioning to a market mechanism, oil and gas prices in Vietnam are increasingly dependent on fluctuations in global oil prices.

"Therefore, it is necessary to regulate oil and gas prices according to the market, as Vietnam depends on the global oil supply and is moving toward a fully competitive market economy. At the same time, state management is required, and oil and gas prices cannot be entirely left to the market because this is a conditional business sector, and the state still holds a monopoly. Oil and gas are essential and sensitive commodities with a significant impact on the economy, so price control is needed to avoid turning state monopolies into business monopolies for group interests, balancing interests in oil and gas business," Dr. Phong emphasized.

Regarding the limitations and consequences of the current oil price management mechanism, Dr. Nguyễn Minh Phong stated: "Perhaps few places in the world have as many 'unknowns' and messages embedded in oil and gas prices as in Vietnam."

According to Dr. Nguyễn Minh Phong, the reality shows that oil price management is related to the transparency of the investment environment, inflation prospects, and strongly affects public trust in the credibility, effectiveness, and efficiency of state management...

Moreover, the reality also shows that consumers are not upset about the number of taxes collected through oil and gas prices for the state budget to spend for the common national interest. These revenues are necessary to create state budget revenue, encourage saving oil consumption as a non-renewable resource, and reduce environmental pollution. People also understand that it is difficult to reduce oil taxes in the context of declining other revenues due to business difficulties, while public spending on macroeconomic stability, business support, and social security is under great pressure, as is the need for national defense.

People do not expect the state to subsidize and always stabilize oil prices regardless of global price fluctuations.

People only wonder: Why do oil businesses and dealers always claim losses while holding a monopoly in a highly profitable market, and domestic retail oil prices are rarely lower than the regional and global averages? Why do oil prices rise faster and stronger than they fall, with decreases being slower and smaller compared to global price movements? Are the benefits of selling oil at high prices going to the state budget for effective public spending? Some experts even worry that the current oil price management mechanism has major loopholes, creating abuse risks, potentially turning state business monopoly profits into corporate monopolies for group interests.

A particularly dangerous misconception is that the delay in oil price adjustments has been "vaguely" understood, either intentionally or unintentionally, as meaning that after each cycle, oil businesses are free to raise prices regardless of global price trends! This has led to negative consequences, such as the hoarding of oil in anticipation of price hikes, creating artificial shortages in the market, and even new forms of crime like large-scale "futures" oil trading ahead of price increases, causing speculation, price hikes following price rumors, and market instability, undermining state policies and management goals, especially in the oil sector.

"The lack of transparency in the oil market and price management, making price trends unpredictable, has meant that every time oil prices rise, it directly and indirectly triggers a complex inflationary spiral exacerbated by false rumors and speculation in Vietnam. This makes the actual impact of rising oil prices on inflation larger than any calculated estimate. At the same time, it also means that the credibility, effectiveness, and efficiency of state management regarding oil prices specifically, and market prices and the macroeconomy in general, have not met expectations," Dr. Phong analyzed.

When asked about the direction for adjusting the oil price management mechanism, Dr. Nguyễn Minh Phong pointed out: "The reality shows that it is necessary to continue reforming oil price management toward greater transparency and market-oriented, in line with global commitments and practices. Businesses must be allowed and required to adjust domestic retail oil prices in line with global oil price trends, timing, and levels. Oversight, audits, and transparency of costs and profits must be increased, and violations such as hoarding oil for higher prices, 'futures' oil trading, and creating artificial oil shortages should be strictly and promptly punished. This is to ensure that the state business monopoly does not become a corporate monopoly for group interests."

Furthermore, companies should be allowed to buy from each other to balance domestic supply and prevent the recent closures of retail outlets due to shortages. This also helps create price competition and develop the domestic oil market among importers, suppliers, and distributors.

In short, domestic oil sales should be freely allowed, gradually moving towards free competition in oil imports to create a competitive and developed domestic oil market.

Mr. Phong added: Recently, Minister Nguyễn Hồng Diên confirmed that two pricing options would be submitted to the Government (including one allowing businesses to set their prices); and businesses have proposed being allowed to buy from each other, which is entirely reasonable and necessary, reflecting the open and objective state management of the Ministry of Industry and Trade regarding oil and gas. This is also a new and convincing example of the Ministry's efforts to improve its management capacity and effectiveness. However, regarding allowing businesses to set oil prices, for now, the state only permits price setting within a state-determined price range, not complete deregulation. Full deregulation will only be implemented after the state's oil business monopoly is entirely dismantled, meaning that price liberalization must follow business competition liberalization in the oil sector.

Additionally, the Oil Price Stabilization Fund should be eliminated, and a fundamental reform of its mechanism should be researched, moving toward establishing a National Energy Security Fund based on material reserves, part of the national strategic reserves system, independent and separate from the business activities of oil companies.

These actions are necessary to make oil price management more transparent, create social consensus, and contribute positively to curbing inflation, stabilizing the macroeconomy, and completing the legal framework of a rule-of-law state that Vietnam is striving toward during its comprehensive renewal and integration process," Dr. Nguyễn Minh Phong concluded.

An Thao