Last night, the Ministry of Industry and Trade announced that it would be reducing retail fuel prices in Vietnam by dipping into the country’s Price Stabilisation Fund (PSF).
A key piece of Vietnam’s fuel pricing framework and an important feature of how the government manages volatility in the domestic fuel market, this article covers what it is, how it works, key criticisms, and proposed reforms.
What is Vietnam’s Price Stabilisation Fund?
The PSF can be thought of as a temporary subsidy mechanism for petrol prices.
Money is collected from petrol sales during normal periods and accumulated in the fund. When global oil prices rise, authorities can release money from the fund to subsidise part of the increase in domestic retail prices.
Rather than the government paying the subsidy directly from the state budget, the support is financed from contributions previously collected from fuel consumers themselves.
How does it work?
The Ministry of Industry and Trade (MoIT) in coordination with the Ministry of Finance, decides how much retailers need to collect and contribute to the fund and then how much can be drawn on at any one time.
For example, last night, the MoIT announced an out-of-cycle fuel price change that included drawing from the PSF of between up to VND 5,000 depending on the fuel product.
TABLE: Regulated maximum fuel price in Vietnam / March 11
| E5 RON92 | RON95 | Diesel | Kerosene | Fuel oil | |
| Price | 26,951 | 29,240 | 31,470 | 28,419 | 23,001 |
| PSF Contribution | -4,000 | -4,000 | -5,000 | -4,000 | -4,000 |
| Consumer price | 22,951 | 25,240 | 26,470 | 24,419 | 19,001 |
Usually, prices and any permitted drawings from the PSF are announced once a week on a Thursday.
However, this changed after the Iran conflict began with the MoIT now permitted to change the price as necessary,
Criticism of the fund
Since its inception, the PSF has incurred broad criticism.
Market distortion
Critics argue the fund distorts price signals by preventing domestic petrol prices from reflecting global oil market movements in real time.
Transparency concerns
The fund is held and managed by fuel distributors, which has led to criticism about limited transparency and oversight. It’s been alleged that the structure of the PSF has allowed wholesalers to misuse and misappropriate funds therein.
Administrative complexity
Maintaining and reporting the fund balance across multiple fuel traders adds administrative burden and complicates fuel price management.
Short-term fix
It only addresses prices in the short term and does little to address underlying supply issues.
That is, the mechanism is designed to smooth fluctuations in retail fuel prices rather than ensure adequate fuel supply.
As a result, it cannot resolve shortages caused by disruptions to imports, refinery output, or distribution networks.
Proposals for reform
There have also been a number of reforms proposed.
Centralise the fund
Some proposals call for moving the fund from accounts held by fuel distributors to a single government-managed account to improve transparency and oversight.
Improve disclosure
Reforms could require more frequent and detailed reporting of fund balances and transactions to address concerns about transparency.
Targeted support
Instead of subsidising fuel prices broadly, some analysts suggest directing support toward transport companies or vulnerable households during energy price shocks.
Abolishing the fund altogether
Eliminating the fund entirely and allowing domestic petrol prices to move in line with global oil prices comes up often.
This could also be coupled with tax policy.
Adjustments to the environmental protection tax and import duties have already been used to manage price shocks.
Expanding on this arrangement would be simpler and faster than the current system.
What’s next?
The PSF is a mechanism designed to regulate fuel prices in Vietnam to avoid major price spikes.
It does, however, have broad limitations that make it generally only effective for short-term price fluctuations.
Against major fuel crises, like what is occurring now on the back of conflict in the Strait of Hormuz, its efficacy is limited — even with the current PSF disbursements, the retail fuel price is still up over 25 percent since the war began.
Nevertheless, the fund remains a central element of Vietnam’s fuel pricing framework and an important feature of how the government manages volatility in the domestic fuel market.