[Vnbiz] Not on Vietnam but may shed light on the inflation debate....a readers rsponse from

[Tran Dinh Hoanh]

Dear brother Phong & CACC,

First, we have to clarify the term "gasoline subsidy."  The Vietnamese
government uses that term, so that it may erase it--erasing subsidy.  With
all due respect, I would say that the use of the term "subsidy" here is
wrong and absurd.

Say, Viet Petro exported crude oil at X USD per barrel, and imported refined
gasoline at Y USD per barrel.  Y USD is what Vietnamese customers on the
streets pay.

Now, the price of crude oil is increased by 5 USD per barrel.  So the new
price for crude oil export is X + 5 USD per barrel.  That 5 USD is windfall
profit for Viet Petro.
And (to simplify the issue), the new price for gasoline import is Y + 5 USD
per barrel.  The extra 5 USD is what customers on the streets have to pay
more.

If Viet Petro doesn't export the crude oil but refines its crude oil
instead, it wouldn't have that 5 USD windfall profit, and the Vietnamese
customers wouldn't have to pay that 5 USD extra.

Or if Viet Petro does both export and import, it would DEFINETELY take that
5 USD windfall profit to offset the import cost to reduce the final price
for its customers (so that the company can be competitive in the market).
Any seller with a brain would do that--the best way to be the number-one in
the market place is to reduce the cost to your customers any time you get a
chance.

In all these above examples, nobody, no accountant of the world would call
that a subsidy.

Now, the Vietnamese government splits the oil export and oil import into two
different arms, then we have 2 things happen:

1.  The import arm (owned by a government monopoly and a handful of foreign
investors) keeps all the windfall profits to themselves, while the
population, including the poorest of the poor, has to carry the full burden
of the cost increase, (which generates huge inflation pressure for the
country).

2.  The simple "cost transfer" and "cost offset" would now be called
"subsidy."   That is absurd.  If the transfer must be called subsidy, then
the government should simply put both the import and export arms into one
company (tong cong ty), and all the accountants of the world will call that
"cost offset" or something similar.

The above analysis shows these problems:

1.  The problem with the term "subsidy."
2.  The unfairness and unconscionability of the arrangement:  The windfall
profits are kept by one company, while the entire population is forced to
carry all the burden of cost increase.  Please note that both the export and
import arms of the government are state-owned companies.  It means, the
people, the population is the true owner those two arms.  The true owner has
the right to put the two arms together and offset the cost for HIS
benefits.
3.  The inflation pressure generated by such unfair arrangement.

If the Vietnamese gas price is lower than the price in Camdobia, smuggling
may occur, but that is true with anything on the market with some price
differences, from sugar, to tobacco, to wine, to rice.  There is no reason
why Vietnam has to keep every thing the same as in Cambodia.  Border patrol
is the job of custom personnel.  In addition, gasoline would be the most
difficult product to smuggle -- it is not cocaine, or clothing.  The little
issue of smuggling gasoline to Cambodia should not be a concern that may
derail a major policy that involves the life of everyone of 82 million
Vietnamese and the current pressing inflation problem that has to be solved
immediately.

Have a great day!

Hoanh



On Wed, Mar 5, 2008 at 5:20 PM, <Hong-Phong_Pho at ita.doc.gov> wrote:

> [ Vietnam Business Forum ]
>
>
>
> Dear anh Hoanh:
> There are various problems with this posting, but I will only focus on
> one: gasoline subsidy.
> What Vietnam makes in exporting crude oil, it has to turn around to pay
> for ever increasing demand for refined products, including gasoline.
> Gas in Vietnam is cheaper than in neighboring Cambodia so there is much
> smuggling.  Subsidizing gasoline consumption in Cambodia makes even less
> sense.
> Best,  HPP
>
>
>
>   *"Tran Dinh Hoanh" <tdhoanh at gmail.com>*
> Sent by: vnbiz-bounces at mail.saigon.com
>
> 03/04/2008 03:42 PM   Please respond to
> vnbiz at vietlinks.net
>
>    To
> vnbiz at vietlinks.net  cc
>   Subject
> Re: [Vnbiz] Not on Vietnam but may shed light on the inflation
>  debate....a readers rsponse from
>
>
>
> --
> Tran Dinh Hoanh, Esq., LLB, JD
> Washington DC
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