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Petrol price surges to VND19,000/litre, dollar price skyrockets 22nd July 2008                

At 9 am on July 21, the Ministry of Finance released Decision No 57 on adjusting the retail prices of petrol and oil. The A92 petrol price soared to VND19,000/litre at 10 am today, a sharp increase of VND4,500/litre over the previous retail price level.

Deputy Prime Minister Hoang Trung Hai in person chaired a press conference this morning, announcing the sharpest ever petrol price increases. Ministers of Industry and Trade Vu Huy Hoang and Finance Vu Van Ninh also joined in.

Though the petrol price has been raised sharply, the Ministry of Finance said that the new prices are still much lower than the ones applied in other regional countries. Even with the price level of VND19,000/litre, the state budget will still have to compensate importers for losses, estimated at VND1,000/litre of kerosene and VND1,500/litre of mazut.

As for diesel, the government has decided to increase the price by 14% only because diesel is being widely used in the national economy and mainly services enterprises’ production and business. Currently, the state still incurs 70-80% of losses, while enterprises and users 20-30%.

Also at the press conference, the Ministry of Finance announced eight measures to ensure petroleum supplies, control market and ensure social welfare. The government has asked for electricity and water prices to remain stable for four big consumers (electricity, cement, steel and coal producers).

The decision by the government to raise petroleum prices has sparked the concern that it will lead the prices of commodities and services to increase sharply. Ninh of the Ministry of Finance has calculated that the direct impact of the petrol price increases on the consumer price index (CPI) will be some 0.5-0.7%.

The foreign currency black market has immediately had a strong reaction to the decision on petroleum price adjustments. Earlier this morning, foreign currency exchange agents quoted the sale price at VND16,800/US$1, which has been stable for the last several days thanks to profuse supply.

However, right after the information about petrol price increase appeared on online newspapers, sales agents told clients that they did not have dollars to sell. Some other agents still sold dollars, but set overly high prices.

At 11 am, the biggest foreign currency exchange agent Quoc Trinh on Ha Trung street was quiet because it only purchased dollars and did not sell. Nearby shops were asking VND17,300/US$1, a price level not seen for many days. Ten minutes later, the price was raised to VND17,500/US$1.

People who fear that the petrol price increases will push the dollar price up this morning rushed to sale agents in Ha Trung street to buy dollars, causing traffic jams in the street. The situation was quite different from one week ago, when no one wanted to buy dollars because of the downward trend.

Late last week, the dollar price fell continuously with the prices falling to VND16,860-16,890/US$1, which were even lower than the exchange rates announced by banks.

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