OilVoice - Vietnam Makes Further Cuts To Oil Product Import Tariffs

Vietnam Makes Further Cuts To Oil Product Import Tariffs

Friday, January 29, 2010

Hanoi has slashed oil product import tariffs for the fourth time in a year, helping out the bottom line of domestic marketers operating in a gradually liberalising downstream oil sector. While the fall in import duties on diesel, fuel oil and kerosene is in line with recent fiscal measures, the direction of import tariff changes is set to become less predictable following the government's decision to index fuel duties to crude prices.

The gradual relaxation of oil product import tariffs has been made possible by the start-up of domestic crude refining in Vietnam early last year. This helped reduce the fiscal importance of import duties to the government.

The opening of the 140,000 barrel per day (bpd) Dung Quat refinery stands to reduce Vietnam's oil product import requirements in 2010 by a third compared with 2007 levels. In addition, the build-up of refining capacity throughout the coming decade should practically eliminate the country's need to import the main types of distillates by the year 2020.

However, not everyone is convinced. Others believe that Overall import demand is still linked primarily to consumption. This brings into question the degree to which the newly revised tax structure will impact on the decisions to import.

As at February 1, Vietnamese import tariffs on diesel and fuel oil is set to drop by 5%, to 15%, while the kerosene duty will fall by 10%, to 20%. The duty on petrol will freeze at 20%. As early as January of last year, petrol and diesel tariffs stood at 40%. The latest round of cuts follows Vietnam's adaptation of an automatic import tariff tracker. Previously set centrally by the Finance Ministry, as of January 26 the tariffs are based on Platts' 30-day average price of Singapore-traded West Texas Intermediate (WTI) crude.

At present oil distribution and retailing in Vietnam is a government monopoly. However, private firms may soon be allowed to benefit from falling fuel import tariffs. Under government proposals announced in July 2009, Nguyen Cam Tu, deputy trade minister, commented that private Vietnamese companies would be allowed to import and sell refined products as long as they met requirements to have adequate storage facilities and terminals.

Furthermore, the draft measure permits oil product distributors to change pump prices by up to 7%, if world crude prices rise by more than 12%. However, the state would still be on stand-by to intervene in the event of abnormal changes in world prices. Given the ongoing relaxation of the Vietnamese downstream sector, these benefits may soon be made available to foreign private companies as well.