Vietnam National University UNIVERSITY OF LANGUAGES AND INTERNATIONAL STUIDES CASE STUDY REPORT PVOIL STILL REMAIN FUEL EXPORT MONOPOLY AFTER EQUITIZATION SUBJECT ENGLISH FOR ECONOMICS STUDENT LÊ THỊ NGỌC ANH Hanoi, March 12, 2018 I INTRODUCTION TO VIETNAMESE OIL AND GAS INDUSTRY 1 Overview about Vietnamese oil and gas industry To evaluate the Vietnamese oil and gas industry, we will analyze its top strengths, weaknesses, opportunities, and threats with the SWOT matrix below S STRENGTHS high mar.
Vietnam National University UNIVERSITY OF LANGUAGES AND INTERNATIONAL STUIDES CASE STUDY REPORT PVOIL STILL REMAIN FUEL EXPORT MONOPOLY AFTER EQUITIZATION SUBJECT: ENGLISH FOR ECONOMICS STUDENT: LÊ THỊ NGỌC ANH Hanoi, March 12, 2018 I INTRODUCTION TO VIETNAMESE OIL AND GAS INDUSTRY Overview about Vietnamese oil and gas industry To evaluate the Vietnamese oil and gas industry, we will analyze its top strengths, weaknesses, opportunities, and threats with the SWOT matrix below: S - STRENGTHS W/- WEAKNESS - high market share: 35% - Secured domestic consumption market - Favored sector because it is the key industry for Vietnam economic growth - More advanced technologies has applied due to the expanding offshore exploration and production - More skillful and qualified workers - More job opportunities - Domestic oil prices are dependent on global oil prices - Oil price has low degree of flexibility due to the government control - Human resources capability and the applied technology cannot fully satisfy the demands of the branches O – OPPORTUNITIES T - THREATS - State participation entitles to a lot of privileges - There are significant prospects of oil production during approximately 60 years - There are no alternative energy sources since they require great investments due to low efficiency - Using nuclear energy sources is rejected on account of radioactive waste toxicity - Oil reserves are decreasing due to the fact that production ratio exceeds exploration ratio - Exploration extension and development of deepwater areas will be costly and risky - The restructuring plan for the state company Petro Vietnam affects the condition of the whole branches Changes in Vietnamese oil and gas industry over the past 20 years The first change is oil and gas industry has become less influent in Vietnamese economy (The contribution of the industry to the national budget decreased) Before 2000, crude oil revenues contributed more than 20% of total state budget, but in 2014-2015 period it contributed only 7.1% of total annual state budget Vietnamese crude oil export turnover ratio decreased but the revenues increased from 2005 to 2008 But in 2015, both the turnover ratio and revenues decreased rapidly + 2005 revenue: $ 7.37B (26.41%) + 2008 revenue: $ 10.36B (21.42%) + 2015 revenue: $ 3.806B (2.34%) The second change is Domestics gas and oil consumption has increased rapidly since 2000 Year 2000 2006 2012 Crude Oil Consumption 171 kbpd 283 kbpd 384 kbpd Natural Oil Consumption 1.6 bcm 7.1 bcm 9.4 bcm 2015 II 424 kdpd Unit: thousand barrels per day (kbpd); 10.2 bcm billion cubic meters (bcm) CONCEPTUAL BACKGROUND Over view of Vietnam Oil and Gas Group (PVN) PVN is a state-owned company (the State holds 100% charter capital), which is licensed to conduct petroleum activities and sign petroleum contracts with organizations and individuals under the provisions of law PVN focuses on these three business operations: Exploration and exploitation of oil and gas; storage, transportation, processing, and distribution of petroleum products; service activities, trade, finance, insurance specialized oil and gas According to financial information of PVN (audited), net profit of PVN has decreased but still in high profit Overview of PetroVietnam Oil Cooperation (PVOIL) PVOIL is a 100% state-owned company, directly under PVN The enterprise was officially established in 2008 after the merger of PVN's member units According to PVN, PV Oil operates in the retail business, distributing petroleum with the second largest market share (accounting for 22-25%) Especially, PV Oil is the only company in Vietnam that exports all of Vietnam's crude oil both domestically and internationally, as well as importing crude oil for refineries * PVOIL Equitization In terms of offering to public, PVOIL is offering 206.8 million shares (20% of charter capital) to the public at an expected starting price of VND 13,400/share for a total of VND2.8 trillion (USD 122m) In terms of offering to employees, PVOIL will sell 1.9m shares (0.18% of charter capital) to employees In terms of offering to strategic investors, PVOIL will sell 462.5m shares (44.72% of charter capital) to strategic investors who achieve all the firm’s criteria III CASE ANNALYSIS Overview of theories PVOIL total revenue after IPO in 2017 was 55,979 billion VND and the total profit was 410 billion VND before tax (Zing.vn, 2018) A monopoly is a market structure in which there a firm is the only producer and seller for a product The entry into this market can be restricted because of high costs or government regulations, monopoly resources that keep potential competitors out (Investopia) A natural monopoly is a type of monopoly that exists due to the high fixed or start-up costs to open a business in a specific industry A legal monopoly is a monopoly that is protected by the government from competition where the government control a particular means of production or a firm is protected from competition such as being granted exclusive rights to offer a particular service like PVOIL remains fuel export monopoly (Vietnamnet.vn,2018) PVOIL belongs to the legal monopoly categories because PVOIL is a part of PVN which controlled by the government and so PVOIL is protected and being granted exclusive fuel export right in Vietnam The monopoly has a downward sloping marginal revenue curve which mean that each product the company sells brings in less revenue than before In an oligopoly, there are only a small number of companies that control a specific industry in the market This selected group has control over the price and restricted entry to keep out potential competitors Some of the oligopoly effects such as: small output and high prices, lower efficiency, high selling costs PVOIL’s undertaking import, export, and providing of crude oil PVOIL is the only company in Vietnam that organizes marketing and commissioning services for the export / import of crude oil in Vietnam and the crude oil of the Vietnam National Oil and Gas Group exploited in foreign fields PVOIL is also the only company providing all crude oil for Dung Quat oil refinery with an average output of million tons per year from domestic and imported sources This shows that PVOIL has a legal monopoly on undertaking importing, exporting, and providing of crude oil PVOIL’s domestic oil and gas distribution 90% of the market belongs to major wholesalers including Petrolimex, PVOIL, Thanh Le, Saigon Petro and Military Petroleum PVOIL confirmed the second position with a capacity of over million m3 / ton / year, accounting for 22% of market share PVOIL owns distribution network in 63 provinces and cities nationwide with about 3,500 petrol stations under the PVOIL brand name and traditional industrial customers in petroleum, coal, and electricity… It is clear that PVOIL has a monopoly in domestic oil and gas distribution Government management of petroleum business The government manages petroleum traders by setting up regulations to closely monitor the petrol business The government also manages petrol prices by restraining prices The government allows businesses to set prices in the range of +/- 10% for gasoline and +/5% for oil The government manages petroleum quantity and quality by setting up regulations to closely monitor the petrol business IV CONCLUSION In a nutshell, in order for the economy to continue to grow steadily, the government needs to intervene in the key economic sector - the petroleum sector to balance the trade balance and increase national incomes At the same time, the state needs to break the monopoly on petroleum business so consumers can benefit the most REFERENCES: Monopoly Investodepia Retrieved from: https://www.investopedia.com/terms/m/monopoly.asp Marten, Whittaker, Bourito (2015) G ̣ overnment takes in upstream oil and gas Retrieved from: https://www.bcg.com/publications/2015/government-take-inupstream-oil-and-gas-framing-a-more-balanced-dialogue.aspx SGT (2018) PV Oil remains fuel export monopoly after equitization Vietnam net Retrieved from: https://english.vietnamnet.vn/fms/business/194064/pv-oil-remainsfuel-export-monopoly-after-equitization.html Vietnamnet (2017) Vietnam prepares for opening of petroleum market Retrieved from: https://english.vietnamnet.vn/fms/business/179062/vietnam-preparesfor-opening-of-petroleum-market.html ... service like PVOIL remains fuel export monopoly (Vietnamnet.vn,2018) PVOIL belongs to the legal monopoly categories because PVOIL is a part of PVN which controlled by the government and so PVOIL is... https://www.bcg.com/publications/2015/government-take-inupstream-oil-and-gas-framing-a-more-balanced-dialogue.aspx SGT (2018) PV Oil remains fuel export monopoly after equitization Vietnam net Retrieved from: https://english.vietnamnet.vn/fms/business/194064/pv-oil-remainsfuel-export-monopoly-after-equitization.html... of crude oil PVOIL? ??s domestic oil and gas distribution 90% of the market belongs to major wholesalers including Petrolimex, PVOIL, Thanh Le, Saigon Petro and Military Petroleum PVOIL confirmed