How can foreign investors invest and trade in petroleum?

Illustration image. Source: Internet

Why transfer 35% of shares?

The Ministry of Industry and Trade recently submitted a report to the Government on the promulgation of a decree amending and supplementing a number of articles of Decree 83/2014/ND-CP on trading petroleum. This report was sent to the Government on March 29, a few days before the Government entered a new term.

This ministry gave a quite detailed explanation for the content of the regulation "allowing domestic petroleum enterprises, if they have production activities, to transfer shares to foreign investors but not over 35%”.

This is controversial content over time. The Ministries of Public Security, Planning and Investment, and Finance believed this was a new regulation, raising concerns about energy security, the legality and the intrinsic benefits of opening up to allow foreign investment.

However, according to the Ministry of Industry and Trade, this regulation has just been included in the decree, but in fact has been implemented for many years for State-owned petroleum enterprises such as Petrolimex (sold to foreign investors 20%), PVOil (35%), BSR (49%), approving through the equitisation process, mobilised investment capital and was approved by the Prime Minister before implementation. These enterprises are still doing business and operating normally.

"The inclusion of this content in the draft is also to implement the leadership of the Government leaders in March 2016 on the issuance for increasing capital of the strategic shareholders of Petrolimex," explained the Ministry of Industry and Trade.

Besides that, the participation of foreign investors contributed significantly to improving governance and making financial statements more transparent, thereby improving efficiency and competitiveness, especially helping to increase the value of businesses through the value of shares.

“Foreign investors were also very knowledgeable and abided by the Vietnamese laws and regulations in petroleum business. However, because there were no official and specific regulations on the shareholding ratio of foreign investors, so domestic enterprises as well as regulators were very confused when negotiating with them on investment and issuance for increasing capital; especially the lack of consistency in the shareholding rate of this object when the company is listed on the stock exchange,” the Ministry of Industry and Trade said.

The business is completely under control of its operations

The Ministry of Industry and Trade also mentioned that thousands of other enterprises have been engaged in petroleum business, including many joint stock companies operating in diversified activities listed on the stock exchange also have demand for foreign investment.

Foreign investors are also interested in the shares of those companies but face difficulties due to a lack of clear and specific regulations. Therefore, this provision is suitable for the reality and the development needs of the petroleum industry.

“The regulation of the share transfer limit at 35% has both solved the problem of capital attraction, technology and business administration skills, but still limits the level of foreign investors' intervention in the operation and business activities of domestic enterprises,” the Ministry of Industry and Trade explained about the 35% figure.

The Ministry of Industry and Trade emphasised: "The proposal on opening of the petroleum market started from the needs of domestic petroleum businesses, not from foreign enterprises around the world and the region has opened petroleum markets like China, Singapore, Thailand and Japan.

It is argued that petroleum firms, although belong in which economic sectors, they must comply with the conditions and provisions of this decree and other relevant legal documents when doing business in the Vietnamese market. The Ministry of Industry and Trade assessed that the enterprise was completely under control to ensure the management of energy security, quality and fire safety.

The allowance of this transfer is an indirect investment activity that does not allow firms to directly exercise the right to distribute petroleum in Vietnam. The exercise of the right to distribute petroleum in Vietnam is only possible when a foreign enterprise establishes a branch in Vietnam and directly operates distribution activities.

After many analysis and arguments, the Ministry of Industry and Trade also stated that the case that when the Prime Minister saw the content "allowing traders to trade in petroleum if they have production activities that transferred their shares to foreign investors not more than 35%", it is necessary to continue researching and evaluating more. The ministry recommended removing this content from the draft decree amending Decree 83/2014/ND-CP.