Reforms of fossil fuel fiscal policy - not only price
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 It will force enterprises to replace outdated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