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Sharp increase in the volume of illegal diesel and liquefied gas trade in Ukraine

Author : Dmytro Kulyk

The share of the shadow market in the segment of diesel fuel reaches about 20% and 30-50% for shadow sales of liquefied gas
20:26, 6 August 2018

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In terms of the complete passivity of state bodies and lack of Ukraine’s coordinated national policy, sales of autogas and diesel fuel have significantly increased recently. This is largely due to the growth in the number of illegal sales outlets, which has recently reached an unprecedented scale. Such sales outlets often sell oil products that are legally imported by large wholesale traders.

A complicated situation has developed in the oil products market: over the past few years, trade in illegal petroleum products has reached the record levels. The share of the shadow market in the segment of diesel fuel reaches about 20% and 30-50% for shadow sales of liquefied gas (depending on the region). As a result, the state and local budgets will not receive significant amounts, which range from 0,18 – 0,26  billion USD annually. This year, we forecast that the losses could reach the level of 0,37 billion USD.

The main driver of the shadow market is illegal gas stations, the number of which has recently increased significantly. In Ukraine, there are up to 500 illegal diesel fuel stations and about a thousand gas stations selling liquefied gas. Perhaps the most favorable situation is now observed only in Kyiv, where in 2017 the authorities took drastic measures against illegal gas stations. Now Kyiv has not more than 10 illegal gas stations. At the same time, most of the dismantled modules moved to the Kyiv region, and their number reached 450 stations.

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The struggle against the regional illegal stations is usually point-like. After some time, the dismantled modules come back to their original place. We are convinced that results can only be achieved through comprehensive work that would be carried out at the national level. They offered the authorities to create a working group, which would include representatives of the police, State Fiscal Service, the Tax Police units, the State Architectural and Construction Inspection of Ukraine, the State Service of Ukraine for Labor, the State Service for Geodesy, the State Service for Food Safety and Consumer Protection and so on. The working group should carry out a comprehensive monitoring of compliance with the requirements of the legislation of land documentation, the availability of permits, and payment of taxes. By the way, the first sign of illegal gas stations is the absence of fiscal checks and cash settlements.

Last week, the Oil and Gas Association has prepared and sent letters with its proposals to the Presidential Administration, the Cabinet, the Ministry of Economic Development and Trade, and the Ministry of Internal Affairs.

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We are sure that the authorities are interested in increasing the budget revenues. According to our observations, the phenomenon of illegal fuel trade is not systemic. As a rule, this is a small-town phenomenon, covered by local officials of low rank. Petroleum products are the only excisable type of goods, production, and trade in which is still not licensed in Ukraine.

Legal operators of the oil products market are interested in defeating the market of illegal oil products, because now this is holding them back from further investments in the business, especially in the segments of liquefied gas and diesel. Illegal entities are interested in these segments because they are the fastest growing. The segment of gasoline in Ukraine is annually reduced. In addition, it does not attract illegal players due to the characteristics of the consumers. Those who run the car with gasoline, as a rule, do not risk doing this on unverified, unbranded gas stations. In contrast, truck drivers, who often use the transport of firms and do not mind to increase their profits, happily buy fuel on the illegal barrels, which sell the fuel by 0,04 USD cheaper than the legal gas stations.

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Given the non-payment of taxes, illegal stations have a margin of up to 0,26 USD per liter of diesel or autogas. The threshold for entering the illegal business is also quite low: if the construction of a gas station costs at least 2,5 million USD, while the construction of the illegal station, the so-called "barrel," is no more than 20-30 thousand USD. There are no effective mechanisms of state punishment for such activities, so the illegal business is still more than attractive. This explains the unprecedented rates of its growth and scope.

Of course, no one can vouch for the quality of the illegal petroleum products. According to our data, most of them sell the petroleum products, which are legally imported into the country by large oil traders. And then special companies sell them to the illegal stations. Our State Fiscal Service should pay attention to these schemes.

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Illegal points often sell petroleum products of low quality. According to our estimates, it accounts for about 20% of all the illegal sales. We are seriously concerned about the suspiciously high volumes of import of aviation fuel, the excise tax is much lower than the excise tax on diesel (excise tax on diesel fuel is 139 euro per 1,000 liters, aviation fuel excise is 21 euro per 1,000 liters). According to our data, illegal stations mix diesel and aviation fuel, thus making the product cheaper. This issue should be investigated by a working group formed of the departments’ representatives.

This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.

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