State-run oil conglomerate has continued to seek the government’s approval for a fresh tax cut this year for locally refined oil products from the Dung Quat oil refinery, which is located in the central province of Quang Ngai.
Locally refined diesel and jet fuel cannot compete with imported goods due to the higher tax rates, said PetroVietnam in the document submitted to authorities.
The $3 billion Dung Quat Oil Refinery in the central province of Quang Ngai.
Declining import taxes on fuel products following the realization of a regional free trade agreement has drastically cut the price of imported fuel products, making the prices of local products uncompetitive and resulting in mounting unsold stock, the firm said.
According to the ASEAN Trade in Goods Agreement (ATIGA) import duty on diesel and jet fuel from countries in the region will be cut from 20 percent to 10 percent from early 2016.
ASEAN, a bloc of ten Southeast Asian countries including Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Cambodia, Laos, Myanmar and Vietnam, entered a regional free trade area, the ASEAN Economic Community, at the end of December 2015.
Meanwhile, the tariffs for the products churned out by Dung Quat remains at 20 percent, making them unable to compete with imported products, said PetroVietnam in the document signed by its deputy general director Nguyen Sinh Khang.
Moreover, PetroVietnam said import taxes slapped on petroleum products imported from South Korea has also been set at 10 percent, posing another threat to locally refined fuel.
The preferential tax rate applied for South Korean products is realized in line with Circular 20 of the Ministry of Finance dated on December 16, 2015 on preferential import tariffs under the FTA reached earlier between the two countries.
Among Dung Quat Oil Refinery’s product lines, gasoline accounts for more than 90 percent, of which 50 percent are diesel and jet fuel.
The plant will have to be temporarily shut down if such large unsold inventory is not cleared, said PetroVietnam, in the third attempt so far to help its oil refining arm Binh Son Refining and Petrochemical Ltd (BSR), which manages the refinery.
In addition, PetroVietnam also concerned about difficulties BRS is facing in finding local distributors to sign long-term contracts for its petroleum products in 2016.
In the context of plummeting world oil prices and reducing import duties, many domestic petroleum wholesalers only want to sign short-term contracts, lasting from two to three months, to buy locally refined fuel with BSR, and are reducing the amount of their orders
Even the country’s largest wholesaler, Vietnam National Petroleum Group (Petrolimex), PetroVietnam’s largest buyer, signed contracts for only two months of the year and reduced the monthly volume it bought from 120,000 m3 tom 80,000 m3 of diesel to wait for the next moves in the world market, said PetroVietnam.
Such reduction in purchase volumes and the fact that those wholesalers only wanted to sign short-term deals have exposed the plant to more risks, affecting its plans in crude oil purchases, sales, as well as the objective of ensuring safe operation of the plant this year.
In 2015, PetroVietnam twice proposed tax cuts for fuel produced by Dung Quat Oil Refinery after the implementation of preferential tariffs following the ATIGA.
The Ministry of Finance decided to reduce tax on petroleum products from Dung Quat to 20 percent, the same levels as the rates imposed on fuel products imported from ASEAN countries.
The BSR last year earned VND6 trillion ($270 million) profit from a VND95 trillion revenue generated by its $3 billion plant, which became operational in 2009.
In mid-2015, work on a $1.82 billion expansion project for the plant to increase capacity to 8.5 million tons a year by 2012 started, bringing the total investment for the project to nearly $5 billion.