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Auto gas price could rise sharply: Privat group wants Ukrainians to buy gasoline

Author : Olena Holubeva

Source : 112 Ukraine

Autogas prices might significantly increase in Ukraine. MPs from the Servant of the People party, who are associated with Igor Kolomoisky’s Privat group, propose changing the excise tax policy on gasoline and gas
20:06, 17 December 2019

112 Agency

If the legislative initiative in its current form is adopted, auto fuel which traditionally considered affordable can go up in price, while gasoline will become cheaper. The amendment of Olga Vasilevska-Smaglyuk, which approves this legislative norm, gained only 145 votes in the Verkhovna Rada and was rejected, but market participants do not exclude that it can once again return to the agenda and will be adopted.

Verkhovna Rada was considering a draft law on amendments to the Tax Code and some other legislative acts (regarding the administration of excise tax). The day before, the relevant committee on finance, taxes, and customs policy reviewed the amendment to this document, which suggested a decrease in gasoline excise tax rate from the current 213.5 euros per 1000 liters to 139.5 euros, and a 2.7-fold increase for liquefied gas - from the current 52 euros to 139.5 per 1000 liters. The amendment was submitted by Olga Vasylevska-Smaglyuk (Servant of the people party), who, before being elected to the Rada, worked as a journalist on Igor Kolomoisky’s  TV channel. The revision committee did not support the amendment.

“The committee did not support the revision of the excise tax adjustment for gasoline and autogas. Personally, I am against the norm, which will lead to higher prices for fuel, traditionally considered social and affordable for poor people. Those who can afford drive Maybach and BMW, they don’t fill cars with autogas,” said the co-author of Bill No. 2317, member of the Finance, Taxes and Customs Policy Committee, Olexiy Ustenko.

During the vote in the Verkhovna Rada, only 145 MPs voted for the amendment, of which 115 were from the Servant of the People faction. "As a result, the law was sent for a second reading with a vote next Tuesday. This means that in the coming days Kolomoisky’s efforts to push through his amendments, as well as media and psychological attacks on opponents will start," writes ex-MP Serhiy Leshchenko.

Privat group wants to sell more gas

Experts and market participants are also seriously concerned about the situation, since the adjustment, which involves a decrease in excise tax on gasoline and an increase on gas, has been lobbying by controlled by Igor Kolomoisky Kremenchug Oil Refinery (Ukrtatnafta) for the past three years. And this time Kolomoisky is not going to retreat so simply.

At the Petroleum Ukraine-2019 conference, the chairman of the board of Ukrtatnafta Ruslan Lyapka said that in the future, the correction of excise taxes will lead to an increase in gasoline consumption to 3 million tons (70% of Ukrainian production) and a decrease in gas consumption to 1 million tons. 70% of gas is imported to Ukraine and mainly from Russia, this will reduce the dependence on Russian imports of this product from 70 to 50%. Apparently, this is one of the arguments of the authors of the initiative in favor of its adoption. However, no one talks about the benefits that Privat will receive from this initiative.

"Yesterday, the Verkhovna Rada committee rejected the amendment, but this does not mean that the issue has been removed from the agenda. It can be submitted to other meetings of the committee, but any MP has the opportunity to amend the vote in the hall, and the parliament can easily vote," says A-95 analyst Artem Kuyun.

In addition, the adjustment of excise rates seems to be supported by the head of the Energy Committee of Belarus, Andri yGerus. In comments on Facebook stating that Privat openly lobbied for the adjustment of rates for motor fuels in an effort to stop the growth in the use of liquefied gas in order to sell more gasoline," he opposed Kuyun.

It has not yet been possible to get a comment from Gerus, although questions have been sent to him.

Related: Gas stations start selling Euro 5 gasoline: Will prices rise?

Among other things, now the initiative to change excise tax rates on gasoline and gas is supported by large retail chains that previously opposed. Large retail operators rightly feared that Privat group and Kremenchuk refineries would monopolize the market. Now the initiative to increase gas prices has found a response in their hearts since the rapid growth of this segment was a surprise catching them without the appropriate logistics infrastructure for storage and delivery, said GT Group CEO Vladyslav Kolodyazhny: "The need for additional investment does not cause delight, especially when comparing the margins of two products on stellas (according to market participants, legal networks sell autogas with an extremely low profitability, compensating for it with other products - ed). Plus, this topic can be speculated when considering other “fun initiatives,” such as the mandatory addition of bioethanol to gasoline, which has surfaced again”, Kolodyazhny added.

Despite the fact that diesel fuel remains the main driver of the market, the volume of LPG consumption has doubled over the past year, while the volume of gasoline consumption has fallen by 2 times.

Gasoline will fall in price, gas will rise

If the excise taxes on gasoline and autogas are adjusted within such limits as suggested by the revision of Vasilevska-Smaglyuk, the price of autogas on will increase, while gasoline will decrease slightly, experts say. “Of course, the increase in gas prices will inevitably affect its market positions, in particular regarding the increase in consumption. At the same time, gasoline will become cheaper,” says Artem Kuyun.

According to experts, the implementation of the initiative can lead to a number of negative consequences. “It’s not clear why they decided once again to start by raising prices for social products and to kill almost the only growing oil product market, and not to increase the pressure on illegal immigrants. It’s apparently easier, because all the attempts in this area are futile,” says Kolodyazhny. As you know, since 2005, the consumption of liquefied natural gas as a motor fuel grew 3 times. According to the head of GT Group, in the case of the implementation of proposals for changing the excise policy in the automotive fuel segment, we can talk about the complete loss of the market for industrial consumption of propane and autonomous gas supply, which has just begun to emerge. Also there will be the heyday of smuggling, counterfeiting and shadow schemes, which begin to grow just as the tax burden on the product increases. Even at the moment, the shadow market is about 50%, Kolodyazhny noted.

“The proposal of Ukrtatnafta is strongly contrary to world practice: in none of the countries does excise duty on liquefied gas account for more than a third of excise taxes on gasoline. Thus, countries, on the contrary, stimulate consuming auto gas as a more environmentally friendly and affordable product,” said Artem Kuyun. According to A-95, the EU average excise tax on gas is 22%, while in Turkey - 36% of the gas rate. In Ukraine, with the proposed changes, this ratio will be 100%.

At the same time, it will not be possible to reverse the downward trend in gasoline consumption, which is observed not only in Ukraine, but also in the EU countries, and to increase Ukrtatnaft's sales by adjusting excise taxes, experts say.

"The initiative to adjust gas and gasoline rates looks like this: let's raise the gas price for everyone so that one can sell more gas in bulk," said Artem Kuyun. He emphasized that even if the amendment was adopted, one should not count on a sharp increase in gasoline consumption: "As we recall from the experience of 2017, gas prices rose to 50 cents per liter, and gasoline was 1 USD per liter, and people wanted gas instead of gasoline."

“The problem of selling gasoline has been worrying domestic producers for a long time. Their share in the total market is about 40%. The remaining 60% is occupied by Russian and Belarusian producers. Since the last five years, the total market volume has been steadily decreasing due to the growing auto gas market and global trends, in absolute terms the share Ukrainian producers are also declining, and the problem of selling gasoline is becoming more acute. So it’s not the first time Ukrtatnafta has come up with initiatives to break this trend," Kolodyazhny noted.

Opponents of these changes note that the proposed approach cannot be called fair. “It is impossible to call the proposed model equalization of autogas and gasoline rates. Products have completely different densities. Gasoline has a density of 750 kg / m3 at a temperature of +15 and gas has an average 550 kg / m3 density. Thus, with the proposed excise rate of 139.5 euros (instead of 52) for a ton of gas, the excise tax will be 254 euros per ton, while for a ton of gasoline it will be 186 euros. Together with VAT, the tax component in the cost of social gas will be about 55%, while gasoline will remain at about 40%," said Vladyslav Kolodyazhny.

In addition, petroleum products have different energy values. A car will travel 15-20% less with liter of gas then with gasoline or diesel, Serhiy Kuyun writes.

If the revision is approved, this will be a very unpleasant surprise for many car owners. And although autogas will still remain cheaper than gasoline, the economic benefit of installing a gas cylinder will be much less.

Related: Oil price hits record high, gasoline prices in Ukraine continue soaring

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