Thursday, August 24, 2017 - 12:13:40

Reforms of fossil fuel fiscal policy - not only price

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The President of Vietnam has committed to eliminating ineffective fossil fuel subsidies, which is in line with the country’s National Strategy on Green Growth. However, a lot of challenges remain in realising this goal.

Studies by the Central Institute on Economic Management (CIEM) showed that Vietnam’s fossil fuel subsidies, while not a high level on either a regional or global scale, had doubled between 2007 and 2011.

The country has been maintaining fossil fuel subsidies in both direct and indirect forms, with indirect subsidies accounting for a larger part, but difficult to calculate. Subsidies for electricity are the highest, followed by those for petroleum and oil. These policies are believed to be unsustainable, as they contribute to climate change, run counter to the trend of economic development and modernisation, while benefiting better-off people more than the poor.

State-run enterprises still monopolise the power sector, and their ineffective operations are putting pressure on the State budget while reforms in the sector are taking place at a slow pace.

The UNDP in Vietnam has stressed that fossil fuel fiscal policy reform is not all about price. A comprehensive reform of the sector requires the establishment of a competitive power market, reform of State-run enterprises in the sector and proper pricing.

At a recent symposium on this issue, many experts shared the UNDP’s view and emphasised that transparency is the key word in the reform process. Transparency is required in businesses’ financial reports as well as in the mechanism to define power prices and the management of the fund for stabilising petroleum prices.

Vice President of the Vietnam Academy of Social Science Nguyen Quang Thuan said the phasing out of fuel subsidies is an important part of national economic restructuring. It will force enterprises to replace outdated technologies with new energy-saving ones, while encouraging the private sector to invest in the power industry and boosting the shift to green growth.

He added that the adjustment of power prices should be done step by step following a roadmap to allow consumers and enterprises to adapt while preventing inflation and negative impacts on the economy.

In order to control the impact of the reform on vulnerable groups in society, it is recommended that the State continues to improve the social security network and take interference measures to offset the impact on the poor, small- and medium-sized enterprises and household businesses, particularly those operating in the fishery and agricultural sector.

Experts stressed that the reform should be supported by widespread consensus, and that communications campaigns are necessary to popularise the negative impacts of fossil fuel subsidies and raise awareness of effective energy use.-VNA

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