Vietnam controls gas prices, but don't call it a subsidy

May 22, 2008, 6:13 GMT

Hanoi - Vietnam will continue controlling gasoline prices and compensating retailers for their losses, postponing a decision in March to cease government payments and decontrol prices, a senior government official confirmed Thursday.

But the official refused to call the government payments 'subsidies.'

'We don't subsidize prices,' said Deputy Trade Minister Nguyen Cam Thu. 'The government doesn't use the term 'subsidize'. We will compensate basis prices for enterprises so that enterprises can keep the prices at the levels that the government wants.'

Thu said the continuation of price ceilings was a temporary measure to cope with rapid global energy price rises, which have helped drive inflation rates in Vietnam to 20 per cent or more.

In an interview with the newspaper Tuoi Tre, Deputy Prime Minister Nguyen Sinh Hung said the continued price controls were an effort to tame inflation.

'If we allowed domestic petrol and oil prices to go up to close to world levels, prices of goods and services would increase,' Hung said. 'We are giving priority to containing inflation, so we cannot allow the prices follow the market for a certain period of time.'

Vietnam is a significant exporter of crude oil, but must import all of its refined petroleum products until its first refinery, at Dung Quat, comes online in 2009. The government has traditionally set the price retailers can charge for gasoline at the pump and has compensated them when low prices force them to operate at a loss.

Last year the government spent some 500 million dollars to compensate petroleum vendors for their losses, and this year the payments are costing the government over 60 million dollars per month.

On March 22, Prime Minister Nguyen Tan Dung announced the government would begin implementing a longstanding plan to eliminate subsidies and decontrol gasoline prices. The decision to delay implementation runs counter to Dung's frequent calls for Vietnam to move faster towards a more market-driven and less state-controlled economy.

The Trade Ministry's Thu said it was impossible to say how long the payments, which the government does not call 'subsidies,' would continue.

'How long we will freeze the implementation (of eliminating subsidies) depends on the detailed developments of the market,' Thu said. 'We cannot say what we don't know. If tomorrow is not good but is more complicated, we will have to wait. If tomorrow is normal, we will consider what is better.'