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BUSINESS IN BRIEF 30/11   2010-11-30 - VNS

Lack of storage blamed for gas hike

The State should offer incentives to businesses to encourage the building of large liquid petroleum gas (LPG) ware-houses to help stabilise gas prices, Dr Nguyen Si Thang, chairman of the Viet Nam Gas Association (VGA) said.

LPG is used as a cooking fuel for households, a material for the petrochemical industry and a clean fuel for vehicles.

The current gas price hike had become a financial burden for consumers, economists said.

The hike was due to gas warehouses failing nationwide to store enough LPG for domestic consumption.

Thang said Viet Nam had a total of 31 LPG warehouses with a capacity of 500-4,000 tonnes each. Four had a capacity of more than 3,000 tonnes each.

When the gas price is inexpensive, businesses are not able to import a large volume of LPG directly from the Middle East and Australia, and are forced to rebuy from regional countries, including China and Singapore.

According to Decree No107, gas businesses must have a business registration certificate that covers the registration of LPG export and/or import; own or co-own a wharf within the Vietnamese seaport system under a joint-venture or capital contribution contract, which has been built under planning and according to current technical regulation; or have entered into a contract for lease of a wharf for at least one year to receive LPG ships.

The businesses have storehouses for a total capacity of tanks of 3,000cu.m or more for storing imported LPG from ships or other vehicles.

They must also own at least 300,000 LPG bottles of all kinds (except mini-bottles). These LPG bottles must be compatible with trademarks and brands already registered with a competent functional agency under the law.

In November, the power joint-stock company VinaBenny (joint-venture between PetroViet Nam Southern Gas Joint Stock Co and the Japan's Marubeni Company) built Viet Nam's biggest LPG warehouse with a capacity of 84,000 tonnes in Long An Province and a total investment of nearly US$250 billion.

Once completed, the warehouse is expected to contribute to reducing gas prices by importing a large volume of gas from the Middle East and Australia.

Gas price fluctuations are also heavily dependent on the world market. Currently, the domestic gas volume meets about 40 per cent of market demand.

The volume is supplied by Dinh Co gas processing plant and Dung Quat oil refinery.

The gas market suffers from illegal production, trading, extraction and transportation.

Excessive speculation also occurs among gas businesses, leading to higher prices, particularly when the imported gas does not arrive on time.

According to local market management departments, gas sold under false brandnames currently accounts for 30 per cent, causing losses of more than VND80 billion ($4 million) to the State budget.

It has also seriously affected consumers' interests and health.

Viet Nam has 24 gas businesses that meet the standard provided by Decree No107 issued by the Government last year .

Together with strengthening warehouse construction, relevant agencies need to tighten management of gas businesses in the market to stabilise gas prices.

According to VGA, LPG consumption demand has increased sharply from 400,000 tonnes in 2000 to 1.2 million tonnes this year.

It is forecast to reach 1.5 million tonnes and 2 million tonnes by 2015 and 2020, respectively.

On November 1, the price of a 12-kg gas canister increased by VND25,000 to nearly VND300,000. The price is forecast to continue to increase next month.

VN State Bank holds line on prime rate

The State Bank of Viet Nam has decided to hold the prime interest rate for the Vietnamese dong at 9 per cent for at least one month.

The discount rate remained unchanged at 7 per cent, while the refinancing and overnight interbank rates stayed at 9 per cent.

Earlier this month, the central bank raised the interest rate by 1 per cent to 9 per cent per year, the first increase in 11 months, following announcements of no dong-devaluation and seven measures to try to cool inflation in the closing months of the year.

Annual inflation in Viet Nam hit 11.09 per cent year on year in November, a 15-month record high, as food prices soared after severe flooding in the central area killed scores of people and washed away crops and homes. Consumer demand also increased in the run up to Lunar New Year.

The consumer price index (CPI) is estimated to have risen 1.86 percent from October.

The latest CPI suggests that the average annual inflation, which the government had targeted at 8 per cent or less, may unavoidably be in the double digits.

Market move

While the central bank has held fast, small commercial banks have hiked deposit rates to 13-14 per cent to attract customers who are seriously worried about the weakness of the dong.

Westernbank, Maritimebank and HDBank are offering 13.5 per cent interest for one-two month term deposits while Saigonbank, SHB, SeAbank, and WesternBank are offering 13.4-13.6 per cent for mid-term deposits.

Large deposits may also receive a 1-2 per cent bonus.

At the same time, borrowing rates rose to 18-21 per cent per year.

Despite the central bank's attempts to cool the US dollar, the greenback remains expensive on the streets, rising to VND21,400-21,450, up VND100 on Sunday.

Demand for LPG will lead to more imports and searches

The country would have to increase gas imports and implement more gas exploitation projects to offset a shortage of roughly 3 billion cubic metres by 2015, said Do Khang Ninh, general director of the country's key gas supplier PV Gas.

Ninh said that the local demand for gas, especially from power plants, was increasing rapidly and was much higher than the domestic supply, estimating that the domestic supply accounted for roughly 8 billion cubic metres against the annual demand of nearly 10 billion cubic metres.

In Viet Nam, gas is used to generate 36 billion kWh of power and produce 800,000 tonnes of fertiliser, 100,000 tonnes of oil, and 700,000 tonnes of liquefied petroleum gas per year.

Ninh said that local gas- fuelled power plants forecast a severe shortage of gas during next year's dry season, adding that 20 million cubic metres of gas was used per day at power and fertiliser plants.

The country's existing gas exploitation projects have already been fully operational and the demand is estimated to reach roughly 13 billion cubic metres by 2015 and 17 billion cubic metres by 2025, according to Ninh.

Meanwhile, the progress of new gas exploitation projects has been slower than expected. Domestic gas prices have been strongly volatile, discouraging the private sector from investing in the industry.

As a result, the nation will have to increase imports to meet the high demands forecasted in the coming years.

According to the Ministry of Industry and Trade, Viet Nam has total gas reserves of around 700 billion cubic metres but has only extracted about 90 billion cubic metres.

Following recent surveys conducted by PV Gas with foreign partners off the coast of the central region, Da Nang, Dong Hoi and Quang Binh were identified as having high gas potential.

PV Gas said it would keep checking those localities and possibly drill next year.

Shortage may lead to pricey coconuts

Coconut processing firms in Ben Tre Province, a major coconut producer in Viet Nam, are facing a severe shortage of raw materials for production as more fruit has been sold to China.

Tu Nhung, a coconut trader in Ben Tre Province's Mo Cay District, says in the early morning she drives a cargo boat to the fields and by noon, with her boat laden with fruit, she heads to Ham Luong River. There, many boats from China are waiting to buy coconuts.

"Local firms only buy coconuts that weigh a minimum of 900 grammes each while Chinese traders buy all of them, from small to large ones, and offer the same price as local companies," she explains.

Many other local traders do the same.

To cope with the situation, local processors must raise their offers to compete with Chinese traders, who have driven up coconut prices in the province, says Nguyen Minh Tam of Thanh Long Coconut Candy Company.

The price currently stands at VND100,000 for 12 coconuts compared to VND40,000-VND50,000 a month ago, he says.

Despite offering higher prices, local coconut processing companies have not collected enough coconuts needed for production.

In addition, the coconut output this season has been low, equal to 30-40 per cent of the previous crop, which makes the coconut shortage in the province more serious, says La Van Be, deputy director of Ben Tre Province's Department of Industry and Trade.

To cope with the material shortage in the province, coconut processors have rushed to other neighbouring provinces as Tien Giang, Vinh Long and Tra Vinh to collect coconuts, pushing up prices in these localities as well.

Many coconut processing companies have complained that they could not run at full capacity, and some have stopped operations because they were unable to collect enough materials for processing.

To rescue coconut processors in Ben Tre, Be says the province should conduct a survey on the consumption capacity of local processors in order to ensure supply for the sector.

Ben Tre is home to about 50,000ha of coconut, accounting for more than 30 per cent of the province's total agricultural land, yielding about 360 million coconuts a year.

More than 1,000 establishments that produce and trade coconut-based products are operating in the province, according to the provincial Department of Industry and Trade.

Coconuts are one of the provincies key export items, the department says, noting that coconut exports are estimated to reach US$150 million this year compared to $92 million in 2008.

VN-Index rises for sixth consecutive day

Nearly 100 penny stocks hit their ceiling prices today, helping the VN-Index make gains for the sixth consecutive day with the highest trading volume since the middle of September, but the gains may be capped by profit taking.

The index rose to 451.59, up 1.17 per cent against the previous session with trading volume reaching 66.96 million shares valuing more than VND1.38 trillion (US$69 million).

High performing penny stocks included Alphanam (ALP), Nam Viet Seafood (ANV), Da Nang Rubber (DRC), Dien Quang Lamp (DQC), Gemadept (GMD), Thong Nhat Rubber (TNC), Tai Nguyen Co (TNT), Vitaco Petrolimex Transport (VTO) and Vinaship (VNA).

Optimism helped Vien Dong Pharmaceutical (DVD) to reach VND49,200 (US$2.46) with 617,000 shares changing hands, surprising many investors after the share fell to its floor price on Monday following news that the firm's chairman Le Van Dung had been detained by police for alleged manipulation of the company's share price.

On the downside, a number of blue-chips decreased slightly, including Bao Viet Holdings (BVH), Phu My Fertiliser (DPM), Financial Technology (FPT) and Hoang Anh Gia Lai (HAG).

The HN-Index also rose to 108.43, up 3.05 per cent, higher than the growth in HCM City.

The State Bank of Viet Nam has said the prime interest rate would remain at 9 per cent in December.

Banks struggle to boost charter capital

The State Bank of Viet Nam has reminded smaller commercial banks that they must meet the year-end deadline to increase charter capital to at least VND3 trillion (US$142.86 million) or face forced merger, acquisition or closure.
The State Bank also ordered its branches to strictly supervise the compliance of smaller banks, which must report progress to municipal central bank branches on a weekly basis. All branches must then report back to the central bank by December 12.

By the end of October, all 22 commercial banks not yet in compliance had received State Bank approval to increase register capital from an average of nearly VND1.6 trillion ($73.8 million) to an average of VND3.5 trillion ($166.7 million).

Eleven of these banks had received State Securities Commission approval to raise the additonal funds by offering shares.

With just one month to go, however, some market watchers believed that raising capital in this manner is unlikely at this time due to the gloomy state of the financial markets.

The director of the State Bank branch in HCM City, Ho Huu Hanh, told VNExpress that three banks in HCM City were facing difficulties raising sufficient capital after State shareholders withdrew their investment.

Navibank, for example, has been listed on the Ha Noi Stock Exchange since September under the code NVB, but its share price has fallen below the face value of VND10,000 to about VND8,000 per share, casting doubts on its ability to raise the funds needed to increase its charter capital from VND1 trillion to VND3 trillion.

State-owned garment maker Vinatex, which had held an 11-per-cent interest in Navibank, had complicated the matter further by recently withdrawing its investment in the bank.

DaiA Bank, VietA Bank, GiaDinh Bank and HDBank were all reportedly in similar predicaments.

With small commercial banks needing to attract an estimated VND30 trillion ($1.56 billion) in additional investment in order to survive, inter-investment among them may be the only option for survival, said Nguyen Van Thuan, head of the banking and finance department of HCM City Open University.

The State Bank has previously extended the deadline for commercial banks to meet the higher capital requirements. Commercial banks were required by law to register capital of at least VND1 trillion ($52 million) by the end of 2008, but only 28 banks had met the requirement by the deadline. Another 10 managed to meet it only as late as the end of 2009, with the central bank granting permission for the delayed compliance.

This time, however, the State Bank is saying the deadline is hard-and-fast because banks have had four years to prepare for the charter capital increase. The State Bank has vowed to close these banks down or force them into mergers with other institutions if they fail to meet the capital requirements by year's end.

The policy was aimed at eliminating weaker banks and strengthening the overall quality and security of the financial system.



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