"The government has issued a directive which includes this change in the sulphur content for official application," an official from the Science and Technology Ministry, who declined to be identified, told Reuters.

Under the new ruling obtained by Reuters, the sulphur content in unleaded transport fuels would be cut to 0.05 percent, while diesel for industrial use would be cut to 0.25 percent.

"This is going to cost more to importers but we have to apply the new standards anyway," the ministry official said.

Traders said the move would mean lower trading volumes for high-sulphur fuels and could switch the region's benchmark pricing for gas oil or diesel to 0.05 percent from 0.5 percent.

"It's better because the trading volume for 0.5 percent will decrease," said a refinery source.

Vietnam has import quotas for the equivalent of about 69,000 barrels per day (bpd) of gasoline and 120,000 bpd of high-sulphur diesel, about three-quarters of its total product import quota.

Discussions between oil products importers, who have signed contracts for future deliveries with the current sulphur content specification, and policy makers remained inconclusive over when the policy should take effect.

"Importers are really concerned but sooner or later this standard has to be in place," the official said.

Deputy Prime Minister Pham Gia Khiem signed the directive on March 7, saying it will take effect in 15 days from the date it was published by the Official Gazette, the government's publishing arm.

INCONCLUSIVE

An official there told Reuters the directive went out on print on March 23, meaning it will take effect on April 7.

"The government is looking to make the switch for environmental reasons," said an official from Petrolimex, Vietnam's biggest state oil products importer.

Smaller oil importers were unhappy and asked Hanoi to let the switch take place from January 2007.

"It is impossible to do that in about a week from now," said a Vietnamese oil product importer in Ho Chi Minh City. "This is related to the contracts we signed long ago."

The Southeast Asian country spent nearly US$5 billion last year to import 11.34 million tonnes of products, up 39 percent in value over 2004. Lower-sulphur fuel commands a market premium.

Vietnam plans to adopt more stringent requirements for the emissions of vehicles, starting with Euro II emission standards, from July 1, 2007. Euro II requires 0.05 sulphur and also puts limits on benzene and aromatics content in fuel.

Several Asian countries still have no targets to raise fuel environmental standards, but most have followed Europe's lead in cutting sulphur content. Japan aims for 0.0001 percent or 10 parts per million sulphur by 2008 (see Factbox Sulphur is blamed for acid rain and lung problems.

The issue has become more pressing for Vietnam ahead of May 1, when the government allows the import of second-hand cars which officials said could increase air pollution.

Automakers operating in Vietnam said they supported the government's move to tighten vehicle emission and urged state oil product importers to pick high quality gasoline.