Biofuel fails to make a difference in Vietnam, consumption drops

Low consumption and low profit margin have been blamed for the situation. 

Deputy Minister of Industry and Trade Do Thang Hai told VnExpress that sales of E5 RON 92 bio-gasoline (E5) has dropped since the end of 2018.

According to statistics released by the Ministry of Industry and Trade, in 2018, Vietnam consumed over 3.1 million tons of E5 gasoline, equivalent to 42 percent of all gasoline in the market. However, in the first quarter of 2019, this number fell to 38 percent.

Moreover, after over one year of mass selling bio-fuel, a number of petrol stations are beginning to switch back to selling RON 95, as a result of low sales and meagre profit margins. 

"Most of our customers are asking for RON 95 fuel now, so after a long time of selling E5 we are switching back to mineral gasoline," said a private gas station worker in Hanoi’s Ha Dong District, saying her station had removed some E5 cylinders to make space for RON 95. 

Binh, a gas station owner in Hanoi, said that his outlet also switched to selling RON 95 a month earlier due to low E5 consumption.

"There are months where we only sold several hundred litres of E5. This is small so it is difficult to store this type of biofuel," Binh said. Since E5 is a biofuel, if left for long, water will separate from the fuel, causing it to spoil, he explained.

According to fuel traders, the amount of E5 bought by distributors has also dropped sharply since the beginning of 2018. The head of a trading firm who did not wish to be named said that the proportion of biofuel sold to outlets have dropped from 50 at the end of 2018 to only 30 percent in April.

"We can only ensure biofuel sales to outlets in our system, but sales to private distributors will depend on demand and supply of the market. It is difficult to sell to these clients because the profit margin is so low," he said. 

Given the recent rise in global oil price and Vietnam's price cap on fuel, enterprises are actually making heavier losses selling E5 than RON 95 fuel this April. Specifically, VND3,540 (15 cents) is taken out of  enterprises' price stabilization fund to subsidize every litre of E5 RON 92, while only VND2,045 (8.8 cents) is needed for RON 95.

E5 fuel does not sell well also because consumers still have doubts about its quality. They lack information and prices are not attractive enough for them to make the switch, said the owner of a gas station in Saigon.  

"A difference of just VND200 (0.9 cents) per litre is not nearly enough to encourage consumers to use biofuels, given that many consumers are still not confident about the quality of this petrol" conceded Deputy Minister Hai.  

In order to achieve a larger difference, enterprises have suggested a reduction or even abolition of the environmental tax charged on biofuels. The retail price of E5 should be VND2,000-2,500 (8.6-11 cents) lower than RON 95 to encourage consumption of biofuels, they say. 

"The current tax rate of E5 being equivalent to 95.1 percent of RON 95 is not appropriate. The rate should be readjusted instead based on how much the fuel emits. The figure should be 75-80 percent," Hai said. 

The current environmental tax rate for gasoline of all types, except for E5, is VND4000 (17 cents) per litre.

As of now, Vietnam primarily uses two types of gasoline. Before 2017, Vietnam mainly consumed RON 95, an unleaded high-octane mineral gasoline, that burns more efficiently for higher-performance car/motorbike engines that require it, and RON 92, a lower-grade mineral gasoline used for ordinary gasoline engines. 

In January 1, 2018, the government replaced RON 92 with E5, a mix of RON 92 petrol (95 per cent) and E5 bio-fuel ethanol (5 per cent). 

"The shift will contribute to ensuring energy security, reducing dependence on fossil fuels and implementing the commitments made by the Vietnamese government to reduce greenhouse gas emissions, among others," the government said then in a statement.