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

Thu Mar 6 16:27:24 PST 2008

Dear anh Hoanh:
What's absurb here is that if your recommendation is actually taken, 
Vietnam would step backward from becoming a market economy!
Your "analysis" assumes an all powerful pre-doi moi command economy 
government that runs an economy by edict.
Fortunately, two decades of market reforms have made that nearly 
impossible, even in the monopoly sector of oil and gas.
Just a few practical aspects:
-  Crude oil is produced and exported under production sharing contracts 
with foreign investors who sanks in billions of dollars into the venture. 
They do this for profit.  Who can tell them to give up their "windfall" 
profit.
-  Oil is a global commodity, as is gasoline; distorting their prices have 
unintended economic consequences that can't be managed.
-  Vietnam's total oil production/export at 320 mln bbl/day is not that 
much higher than its consumption/import at 270 mln bbl/day.  Is there 
really much to "transfer"?
-  Gasoline price lowered by such a subsidy will benefit a Honda driver 
and the real estate zillionaire in her Phantom all the same, as well as 
Vietnamese products exported all over the world.  Why should Vietnam 
(indirectly) sell it's crude oil for cheap to the World?  Where is the 
fairness in that?
-  Suppose Vietnam has no crude oil, but it would still have to import 
refined products, and it has a big year exporting rice or coffee, would 
you advocate taking windfall profit from rice or coffee producers and 
exporters to offset high gas prices?
The command economic model does not work!
Cheers,  HPP

"Tran Dinh Hoanh" <tdhoanh at gmail.com> 
Sent by: vnbiz-bounces at mail.saigon.com
03/05/2008 07:33 PM
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Re: [Vnbiz] Not on Vietnam but may shed light on the inflation debate....a 
readers rsponse from

[ Vietnam Business Forum ]

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 

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Re: [Vnbiz] Not on Vietnam but may shed light on the inflation debate....a 
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-- 
Tran Dinh Hoanh, Esq., LLB, JD
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