MÔ tả và PHÂN TÍCH các yếu tố môi TRƯỜNG CHUNG về NGÀNH KINH DOANH XĂNG dầu VIỆT NAM ENG

Along with the transition from the centralized and subsidized economy to the market economy under the State's management, petroleum distribution activities also experienced the correspon

MÔ TẢ VÀ PHÂN TÍCH CÁC YẾU TỐ MÔI TRƯỜNG CHUNG VỀ NGÀNH

KINH DOANH XĂNG DẦU VIỆT NAM ANSWER:

FOREWORD

All companies participating in business in the market are subjected to the tremendous impact of environmental factors such as political and legal, economic, social, technological .; especially companies operating in the areas which are always regulated by the State to ensure a balance between the interests of businesses and the development of the economy and social security; Thanh Linh Petrol Company is an example for that and is not an exception

I/ DESCRIBE AND ANALYZE GENERAL ENVIRONMENTAL FACTORS OF THE PETROL INDUSTRY IN VIETNAM:

1 – Overview of Vietnam’s petrol industry:

Vietnam’s petroleum market was established and developed along with the economic development of the country Along with the transition from the centralized and subsidized economy to the market economy under the State's management, petroleum distribution activities also experienced the corresponding period, from the supply method based in amounts and apply a uniform price set by the State to the purchase method based on demand, and through economic contracts An overview of the petrol market over the past 20 years, since Vietnam set the first step in building the foundation of the petrol market in

1989, the conversion process can be divided into three periods: before 2000, from 2000 to late 2008 and late 2008 until now

2 – Analyze the general environmental factors (PEST model) affecting the petrol industry of Vietnam.

2.1 The legal, political factors affecting the petrol industry (P.

As mentioned above, the development of the petroleum market in Vietnam is divided into three main stages and each stage has the State's policies affecting the petrol market as follows:

a The period before 2000:

- This stage lasts for more than 10 years, with the rise of the number of major importers from a single entity, increased to 5 and in 1999, there were 10 participants in importing petroleum for domestic demand In the years from 1989 to 1992, when there was no fuel supply agreements with the former Soviet Union, the State moved from "hard price" regulations to apply the standard prices to fit with the establishment of petroleum source imports from foreign exchange self-balanced by enterprises; purchase from export companies through banks or trust fuel consumption form for enterprises with foreign exchange earnings from exports At this stage, the foreign exchange from crude oil ensured

by the State only accounts for less than 40% of total foreign exchange needed to satisfy the petroleum import demand The selling enterprises can decide on the selling price with a fluctuation of + / - 10% compared to standard prices to ensure the company’s existence

- Since 1993, to unify the management of selling prices, the State issued specified maximum price; companies can decide the wholesale price and retail price in a defined range The State determines the tolerance level of the economy to determine the maximum price; the maximum price adjustment at this stage only takes place when all other regulation tools were already used The import tax tool is used as a controlling valve to keep the maximum price; it doesn’t create super profits and the companies also don’t have to bear losses arising after an economic cycle Additional fee is an additional tool for the import tax when import tariffs reach the uppermost level, which is included in the price stabilization fund managed by the State Traffic fees collected since 1994 are also formed from the principle of recovery of the state budget when conditions allow; is the fixed charges and later renamed as fuel charge

- The biggest characteristics of this stage is: thanks to the provisions of the State on

standard rates, import enterprises can adjust the petroleum price of foreign currency funds mobilized from the exporters; it guarantees their benefits through the appropriate rate so it has raised the amount of imported foreign currency of nearly 60% of the gasoline demand for the economy after there was no longer the fuel source gained from the agreement It was the government policy – which to not compensate the price for people using petrol through

the petroleum companies –is the prerequisite for Vietnam to balance their foreign currency

to import fuel even when the State’s centralized exchange of crude oil accounts for only a small proportion of more than 50% of the total fuel import demand for foreign currency

- This period was also the period when the world price of oil was at the bottom (oil at 10

$ / barrel) and was relatively stable; thus, with the maximum price mechanism, the State has achieved the objectives, namely (1) / Balancing supply and demand to be secured firmly; (2) / individual producers and consumers enjoy relatively stable prices; price volatility is only in the increase trend but the increases are also stable which do not cause more trouble for production and consumption; manage to actively plan the budget for annual gasoline consumption; (3) / the State budget revenue increase through the recovery of import duties, surcharges and fuel costs; (4) / enterprises have finance for investment and development in infrastructure systems, main ports, warehouses, transit warehouses, transport to retail networks

- Despite that, the management - operating mechanism in this period also revealed quite clearly the disadvantages which highlights the relationship between commodity prices are not reasonable; it lead to wasteful consumption, and the fact that investors do not have enough information to calculate actual investment efficiency; thus if the price operating mechanism changes, it will greatly affect fuel use, many manufacturers even had to change their technology due to the changes of fuel (replace oil with charcoal, rice husk, gas); trade frauds occur due to low pricing for policy goods (oil); the fact that the State had kept the prices stable in a long period and outdated with the world prices has created inertia and negative reactions of users to change prices without taking into account the cause and the need to increase the price At the end of this period, the world prices and market sources have shown signs of volatility at a higher level; the balance of supply and demand , the budget and economic growth targets and inflation are at risk of being broken when those bad conditions last

b The period from 2000 until just before the time when the State announced that subsidy will be ended, the petroleum price will be operated based in the market price (9/2008):

- Basically, the content and methods of management of petroleum operations has no

change compared to the previous period Meanwhile, from the early 2000s, the world oil price volatility has gone through fundamental changes; new price level was continuously formed and broken in the next years Due to continued price subsidy policy for consumers through import business while trying to keep domestic prices low, the amount of subsidy budget increased from 1000 billion (in 2000) to up to 22 trillion in 2008; if we don’t count

in the inflation rate, this is also a high speed of increase; there hasn’t been any reviews mentioning this aspect, but just merely considering the review data, if investing trillions for the development of infrastructure projects for oil and gas business, we would be able to create a large enough petrol and oil trading system and modern, which can compete when

we open the petroleum market in the near future

- Also during this period, after the outbreak of the 2nd Gulf War; the gasoline prices have softened but have also formed a new ground; when facing the risk of being unable to balance the budget for fuel subsidies, the Prime Minister issued Decision No 187/2003/QD-TTg dated 09.15.2003 on oil and gas business Up to this point, the innovation in the management mechanism, mainly the management of Decision 187 is still considered the most powerful basic ideas include:

+ The State determines the orienting prices; enterprises are allowed to adjust the price in the changing range of + 10% (for gas) and + 5% (for oil products)

+ From 2 areas of the selling price; the import price at the remote port which enterprises are allow to add to the sale price a fraction of the cost of transport, but must not exceed 2%

of the selling price in the area near the port of import

+ Only change the orienting price when the components of price change a lot; the State

no longer has tools to regulate and ensure the interests of consumers - State - Enterprises

- However, for objective reasons, the breakthrough price mechanism operating in Decision 187 has not been implemented in practice; until now, the State continues to run and direct intervention in the price of petrol, including both up and down directions During this period, although not yet fully apply the operational terms of prices, the introduction of

Decision 187 in 2003 and Decree 55/ND-CP in 2007 has created a wide distribution network with nearly 10,000 gas stations in the country, contributing to stable, healthy market which was formerly quite confusing (when setting up the relationship between the importers and agent and general agents when associating responsibilities and the rights of enterprises to agents and general agents; as well as assisting the management authorities and consumers to be involved in the process of monitoring the activities of agents, general agents in the observance of the provisions of oil and gas business

- Overall evaluating this period, we can see very high determination to innovate management mechanism in the petroleum industry through two legal documents, the Decision 187 and Decree 55, but until now, those two documents haven’t gone into business reality (except the setting up of the distribution system, but the control of compliance has almost not been implemented yet) The price stability factor is still the top priority and it has made the State management agencies confused when operating to achieve the seemingly conflicting goals at the same time The application of a single measures (compensation measures), causing the domestic price to be separate from the world’s price for a too long cycle in the the context of world oil prices form higher new price many times; in addition to supply and demand factors, geopolitical factors also influence price movements; price fluctuations are so large after every day .; all made the budget balance broken, the resources is exhausted for business development; price limitation and adjustment to prevent shock has negative impact on the economy, not to mention the speculation issue for bigger demand, most consumers don’t receive full information about the operating mechanism and the benefits that the State gives to regular people so we could not prevent negative reactions after each adjustment (including up and down), which did not create consensus in society; petroleum seepage across borders is increasing and become more complex and difficult to control; the state budget losses are more due to cross-border petroleum seepage Very bad consequences of prolonged fuel subsidy mechanism (that consumers have understood as to cover losses for enterprises) make it hard for people to accept the adjustment of price increases, including very negative and strong reactions and thinking that the ineffective private petroleum enterprises are always subsidizes and supported by the State It is confirmed that, only when the State can ensure adequate balance of foreign currency to

import fuel, by then that we will be able to apply compensation measures This is different from the previous period, when foreign exchange from crude oil and other concentrated stocks of the State was big enough

c The period from late 2008 till now:

- We can say that this stage is very short but reveals most of the shortcomings of the

mechanism of fuel prices and taxes Continued intervention in price and the application of a mechanism operating in the world oil price conditions change very quickly in two opposite trends which have led to a paradox: in the period which world prices have fallen deeply, the State still subsidized a significant amount, even higher than when the world price reached its peak period; by segmenting the subsidy amount for each period in 2008, we can clearly see this fact ( about 12 trillion / 11 trillion) In sum, from the announcement to end to subsidies, enterprises still do not have the right to determine the selling price as defined in the regulations; the State has no controlling measures to prevent enterprises grouping up to influence the price; it creates ambiguity about the price and unfair business competitions; new documents continue to be introduced but not practical enough (import tax benchmark, the price stabilization fund); the long price registration mechanism still leans to the request-accept model, the media provides information on the up and down of prices very quickly, but did not manage to direct the public to have the right opinion, instead, it creates pressure for both business and resource management agencies; it’s very difficult to manage the period from when the enterprises switch to agents in terms of transparency and correctness, before and after the price increases More seriously, the society has not recognized that the petroleum business should be profitable (though very low) as all other business activities, while they easily accept the information that the banking activities gain thousand billions just in the first 6 months of 2009

d Forces participating in the petroleum market:

- After the Decree 84/ND-CP (in 2009) was issued, we have 4 more non-state enterprises

to join the business structure to act as import and export petroleum and retail companies Up

to now, the oil market has 13 enterprises (both state and private) opearting Including the

Vietnam Petroleum Corporation (Petrolimex) and the Vietnam Oil Corporation (PV Oil) which account for the majority In which, Petrolimex accounts for 48 - 50% market share,

PV Oil accounts for 15 - 16%

- The reason for this market share is because the import of fuel for civilian needs of the economy was mainly conducted by Petrolimex and PV Oil To gradually overcome the inadequacies in the dominant market shares, in 2011, the government has transform Petrolimex mother company into a joint stock one In the future, we will continue to implement the reorganization and restructuring of this group

2.2 Economic factors affecting the petroleum industry (E)

- Vietnam oil market depends entirely on the world’s market:

Gasoline consumed in the country is mainly from imports; the domestic prices depend

on the volatility of world market prices World oil prices always fluctuate and rise high due

to the political unrest in the Middle East and North Africa Some predicted that the crude oil prices in the near future will be able to continue to increase due to continued instability and the world demand increases in the winter The Singapore market - the market supply of key petroleum products in our country also changes in a very erratic pattern

(Source: Petrolimex)

- Petroleum distribution still has monopoly:

+ Implementing the Government Decree No 84/2009/ND-CP dated 15/10/2009, we had

13 major importers of petroleum and petroleum distributors including private ones, basically meet the domestic demand for production and life

+ The monopoly in the oil industry has a history Previously, all of the fuel needed is taken care of by the Petroleum Corporation, but now we also allow other enterprises to operate in this field But the role of the Petroleum Corporation and the distributed system have been formed for so many years, so the market share of Petrolimex is still about 60%

-it is the main force in the country in meeting the needs of petroleum The Petroleum Corporation still operates at the request of the Government for the benefit of the country, even though they have to suffer losses to maintain normal living conditions for people + According to Decree 84, nowadays, the diversification in the forms of petroleum distribution, the types of participants in the petroleum industry start to change However, they are still mostly the domestic enterprises regulated by the state, there is still no participation of foreign enterprises

- Oil and gas business activities are still insufficient: Through the test results of the Central Committee 127, the market management departments of the provinces and cities across the country in the observance of the provisions of Decree No 84/ 2009/ND-CP on 15/10/2009 of the Government on the oil and gas business has discovered some issues such as: some enterprises and general agents signed contracts with the ineligible agents; many businesses make purchases outside of its distribution system; the lack of responsibility in the examination and control in the distribution system; most enterprises do not fulfill the registration or delay the registration for their distribution system…

- Half-heartedly control gasoline prices:

+ The two biggest bottlenecks are: the business conditions of the fuel distribution system are restricted and forced to be balanced with the retail price; despite the fact that we have

allowed enterprises of all economic sectors to participate in the oil and gas business; while giving companies the right to be valued under the retail market, based on the formula provided by the State regulations However, since its implementation, the petroleum prices sometimes were unstable like a “wild horse”, sometimes "frozen" in contrast with the trend

of world prices As directed by the Government, the Ministry of Industry and Trade is working with the Ministry of Finance to study and prepare a decree to replace Decree 84 and other circulars guiding the implementation

+ Still exists an underground market in the oil and gas business: The companies registering in the petroleum business are all allowed to participate in the market, but they only conduct the sale mechanisms of 1 +1 It means that the General Agent may only sign a contract with one business hub and agency are only sign the gasoline retail contract with one general agent or one business and only purchase gasoline with the same business distribution system This regulation restricts the freedom of General Agents and agents since

it eliminates the right to choose partners with competitive prices as well as those providing the best conditions More importantly, if there is no freedom then there can be no commercial market value

+ Missed the change to reduce the price: The petroleum price regulation was conducted under the market mechanism but the formula of the base price is not for competitive prices

In principle, the oil is on the list of items with price stabilization and subject to business decisions, but in fact, the State has control of the retail price Instead of controlling the maximum price as before, the authorities now control the maximum level of price

2.3 The social factors affecting the petroleum industry (S)

- The population growth:

+ The population growth is relatively rapid, especially in the two largest urban areas of Hanoi and Ho Chi Minh City According to the announcement of the General Statistics Office, it’s expeceted that the 2012 population of Vietnam will exceed 88 million, increasing by 1.04% compared to 2010 include: the male population is 43.47 million, accounting for 49.5% of the total the country's population, up 1.1%; the female population

is 44.37 million, accounting for 50.5%, up 0.99% The urban population is 26.88 million, accounting for 30.6% of the total population, an increase of 2.5% over 2010; the rural population is 60.96 million, accounting for 69, 4%, and up 0.41%

+ According to Ho Chi Minh research and development institute and representatives of the World Bank in Vietnam, they have just announced the assessment report of urbanization

in Vietnam Mr Dean Cira, the urban growth expert of World Bank said that Vietnam is in the early stages of urbanization and shifting to the middle stage The percentage of urban population in the country increased by 3.4% / year compared to the figure of 34 percent of Vietnam's population living in urban areas In about 20 - 30 years, Vietnamese population will live in urban areas

- Per capita income:

+ Calculated according to the exchange rate, Vietnam's GDP per capita increased from $

114 in 1991 to $ 1,061 in 2010 By 2012, the economic growth rate (GDP) increased by 5.2%, make the scale of the economy reach $ 136 billion, with a per capita income of about

$ 1,540 / person / year

+ However, the per capita income in Vietnam lagged 51 years compared to Indonesia, 95 years with Thailand and 158 years with Singapore Vietnam's population growth rate is high, but the average income of the Vietnamese people is still a great distance from that of the ASEAN countries and China, though they have been much improved by the reform and the open policies more than a quarter century ago Meanwhile, the chance for Vietnam to catch up with China and the ASEAN economies will remain a distant prospect, if lacking the motivation to further reform Besides, compared to other ASEAN countries, even though the income of the United States has gradually narrowed in 20 years, the gap is still very large at the present time Dr Pham Hong Chuong and his colleagues at the National Economics University, said Vietnam's GDP per capita in PPP terms is less than 1/2 of the Philippines, or Indonesia, about 1/5 of Thailand, 1/10 of Malaysia in 1991 This number exceeded the figures of 3/4, 1/3 and 1/5 of the country after nearly 20 years

- The growth of the material and mental life: