Foreign firms take over petroleum market, Ministry of Industry and Trade anticipates risk
The Ministry of Industry and Trade (MoIT) has proposed removing the rule in a decree that says foreign investors are allowed to hold no more than 35% of shares in petroleum trading businesses.
The rule is included in an amended draft Decree 83/2014. The Ministry said that it was necessary to do further research.
In its document recently submitted to the Government, MoIT further explained the regulations allow domestic petroleum trading firms involved in production activities to transfer their shares to foreign investors, but it cannot exceed 35%.
This is controversial content. The ministries of Public Security, Planning and Investment, and Finance believe that this is a new regulation, raising concerns about energy security, legality, and the actual benefits of opening up for foreign investment.
The amendment to the decree on petroleum trading has not been completed yet. Photo: L. Bang
According to MoIT, this regulation has recently been included in Decree 83, but in fact it has been implemented for many years for state-owned petroleum trading enterprises such as Petrolimex (with 20% of shares owned by foreign investors), PVOil (35%), BSR (49%), through equitization and mobilization of investment capital. This was also approved by the Prime Minister before implementation. These firms are still doing business and operating normally.
MoIT explained that the inclusion of this regulation in the amended draft Decree is to comply with the Government’s guidance issued in March 2016 on the issuance of shares to increase capital for strategic shareholders of Petrolimex.
In addition, the participation of foreign investors contributes significantly to improving governance, making financial statements more transparent, thereby improving efficiency and competitiveness, and helping increase the value of petroleum trading businesses through shares.
The Ministry said that foreign investors are very knowledgeable and abide by Vietnamese laws and regulations in petroleum trading. However, because of the absence of official and specific regulations on the shareholding ratio of foreign investors, domestic enterprises as well as state management agencies are very confused when negotiating with foreign investors on investment and capital increases, especially the lack of heterogeneity in the shareholding rate of this subject when these firms are listed on the stock exchange.
The Ministry said that when the Government Office consulted the Government members on the draft amended Decree, 24 of 25 members passed it. One did not agree with the content allowing petroleum traders to transfer no more than 35% of shares to foreign investors. Three members approved but had additional comments on some content of the amended draft decree.
For the needs of businesses?
According to MoIT, in fact, there are thousands of other companies involving in petroleum trading, including many listed joint stock companies which also need to attract foreign investment.
Foreign investors are also interested in the shares of those firms, but the lack of clear and specific regulations hinders them from investing in local petroleum trading firms. Therefore, MoIT believes that this regulation is consistent with the actual situation and the development needs of the petroleum industry.
“The rule on share transfer limitation at 35% helps solve the problem of capital, technology, and business management skill attraction while still restricting foreign investors' intervention in production and business activities of local enterprises,” the MoIT said.
Therefore, it is necessary to consider the benefits of not opening the door for foreign investors to buy shares of local petroleum trading companies with the early opening of the door for foreign capital and technology.
"The proposal to open the petroleum market comes from the needs of domestic petroleum trading businesses, not from foreign enterprises," the Ministry said. Most countries in the world and the region have opened their petroleum markets, such as China, Singapore, Thailand, and Japan.
The Ministry affirmed that petroleum enterprises, regardless of economic sector, when doing business in the Vietnamese market, must comply with the conditions and provisions of this Decree and other related legal documents. Therefore, businesses are controlled to ensure management of energy security, quality, fire safety and others.
Allowing share transfer in such cases is an indirect investment activity that does not allow foreign firms to directly exercise the right to distribute petroleum in Vietnam. The exercise of the right to distribute petroleum in Vietnam is only possible when a foreign company establishes its branch in Vietnam and directly conducts distribution activities.
The Ministry also added that if the Prime Minister thinks this content needs to be further researched and evaluated, MoIT will propose removing this content from the amended draft decree.
This decree has not been approved by the Government, so it will have to wait for the decision of the new Government.
Commenting on the draft decree, the Ministry of Finance proposed setting regulations to control the number of petroleum traders.
In response, MoIT said that the increase in the number of petroleum traders is consistent with actual conditions. Before 2015, there were 23 major traders nationwide, which has increased to about 40 at present. The Ministry emphasized that the increase is not high. China has nearly 500 and Singapore more than 500 petroleum traders.
MoIT promised to coordinate with the Ministry of Finance and relevant agencies to strengthen the post-inspection task to closely control the quality and number of petroleum distributors.
Some experts have raised concerns that foreign investors with powerful financial capability may swallow up the domestic petroleum distribution system. If this happened, Vietnam’s energy security would be in danger, they say.