OilVoice - Vietnam Set to Privatise State-Run Fuel Distributor

Vietnam Set to Privatise State-Run Fuel Distributor

Thursday, January 07, 2010

The Vietnamese government has signaled the resumption of its privatization drive after earmarking the future sale of state-run Petrolimex, the nation's largest fuel distributor, in the next round of sell-offs. Without specifying a timeframe, Prime Minister Nguyen Tan Dung said that the state was to reduce its holding in Petrolimex to 75% in an attempt to help rebalance the country's budget. The imminent 'equitisation' of Petrolimex highlights returning confidence on the back of strong economic data and rebounding markets.

The partial privatisation of Petrolimex, which at present controls around 60% of the Vietnamese fuels market, can be seen as part of the wider liberalisation of the country's downstream segment. Last year, the government began debating proposals to allow importers of refined products to trade futures contracts and to permit private domestic operators in the fuels market. Also, price caps at the pump were also relaxed, although December 2009 did see the government threaten to bring fuel pricing back under full state control once again.

State-backed Petrolimex is run by the Ministry of Trade and is one of the largest companies in the south-east Asian nation. Although it is impossible to give an accurate valuation for the company as it does not publish accounts, analysts project that Petrolimex could be worth as much as $1 billion-$1.5 billion. The firm, which can boast around 6,000 petrol stations in its portfolio, turned over an estimated 25,000 billion dong ($1.3 billion) in 2008.

One note of caution: although Petrolimex - formally known as Vietnam National Petroleum Corporation - has an extensive distribution network and an established brand, looking forward it is set to face growing competition from private firms as the liberalisation of the downstream segment proceeds. In particular, the company's fuel import permits, the source of its present dominant market position, will gradually see their power decline as more domestic refineries come onstream. A lack of exposure to the burgeoning refining sector is another source of weakness for Petrolimex. Vietnam's solitary operating oil refinery at present is run by PV Oil, the downstream subsidiary of national energy company PetroVietnam.