Vietnam: Ministry proposes removing regulation on foreign-ownership ratio in petrol trading firms until PM reviews

The Ministry of Industry and Trade (MOIT) has proposed removing a tentative regulation in a draft decree that says foreign investors can hold up to 35 percent of shares of petroleum trading companies.

MOIT has submitted a statement to the Government about amending some articles of the decree 83/2014 on petroleum trading management. The document was submitted on March 29, just days before the new Government tenure began.

Foreign-ownership ratio

According to MOIT, when the Government Office collected opinions from Government members on the draft that amends and supplements Decree 83 on petroleum trading, 24 out of 25 members agreed with the draft regulations.

Only one member, who asked for an adjustment, disagreed with the plan to allow businesses trading petroleum products to transfer up to 35 percent of shares to foreign investors.

Three members agreed with the draft document, but also offered suggestions on several issues.

In the document, MOIT gave further explanations about the tentative plan to allow Vietnamese petroleum trading companies that have production activities to transfer shares to foreign investors.

This remains a controversial issue. The ministries of Public Security, Planning and Investment, and Finance say this raises concerns about energy security, legality, and the benefits of opening the market to foreign investors.

MOIT said the regulation was recently legalized, but, in fact, it has already been implemented. Petrolimex, for example, has sold 20 percent of its shares to a foreign investor, PVOil 35 percent, and BSR 49 percent through equitization. The sales were approved by the Prime Minister before they were implemented.

These enterprises have been operating as usual.

MOIT explained that adding the regulation to the draft decree aims to implement the Government decision in March 2016 on issuing shares to Petrolimex’s strategic shareholders to increase its capital.

The ministry said the presence of foreign investors in Vietnamese petroleum companies improves corporate governance and makes financial reports more transparent, thus improving the efficiency and competitiveness of enterprises. It also helps increase the value of enterprises through higher share value.

The presence of foreign investors in Vietnamese petroleum companies improves corporate governance and makes financial reports more transparent, thus improving the efficiency and competitiveness of enterprises. It also helps increase the value of enterprises through higher share value.

MOIT commented that foreign investors are very knowledgeable about Vietnamese laws and strictly observe the laws. However, since there is no official regulation on the exact ownership ratio that foreign investors can hold, Vietnamese enterprises and state management agencies are unclear when negotiating with foreign investors on business issues.

What will happen?

According to MOIT, there are thousands of other petroleum traders, including listed joint-stock companies operating in many business fields which also want to attract foreign investment.

Foreign investors are also interested in these companies, but they face difficulties when planning investment projects because the regulations are not clear enough. Therefore, MOIT believes that the regulation on the foreign-ownership ratio ceiling will suit the practices and development demand of the petroleum industry.

“The limitation on share transfer at 35 percent will help attract investment capital while restricting the intervention of foreign investors into production and business activities of Vietnamese enterprises,” MOIT stated.

The country needs to assess the benefits it can expect if it doesn’t open the market to foreign investors, and the benefits of opening the market, which can help attract capital and technologies.

MOIT affirmed that the proposal on opening the petroleum market was based on the demand of Vietnamese enterprises, not demand from foreign enterprises. It said that most countries in the world and the region have opened their markets, including China, Singapore, Thailand and Japan.

It said that petroleum companies, once they do business in Vietnam, must comply with the requirements and regulations stipulated in the decree and other relevant legal documents. Therefore, there is no need to worry about energy security.

In principle, this is a kind of indirect investment, as foreign investors are not allowed to directly distribute petroleum products in Vietnam. The distribution will be implemented only when foreign companies set up branches in Vietnam.

However, while trying to protect its view to allow foreign investment in petroleum companies, the ministry believes that it would be better to remove the tentative regulation on the foreign-ownership ratio from the draft Decree for now, if the Prime Minister thinks that the issue needs further consideration.

The draft decree has not been approved yet and will be considered by the new Government.

The Ministry of Finance (MOF) has proposed creating a regulation on controlling the number of petroleum distribution businesses in order to prevent over-development.

In reply, MOIT said the increase in number of businesses is suited to real conditions. Prior to 2015, Vietnam had 23 petrol businesses, and the figure now is 40, which is believed not to be a big increase, if compared with 500 in China and over 500 in Singapore.

MOIT has promised to work with MOF and relevant agencies to strengthen post-licensing inspections in an effort to strictly control the quality and quantity of businesses in the petroleum market.Â

Luong Bang