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Ukrainian drivers feel effects of fuel price rise: What's going to happen next?

Author : Olena Holubeva

Source : 112 Ukraine

Over the last week, the prices for gasoline and diesel fuel in the filling station networks have grown by 1,8 USD / 100 liters
15:00, 9 February 2021

Open source

Fuel is getting more and more expensive at the gas stations in Ukraine, and this growth is unlikely to stop. Retail prices for gasoline and diesel have not yet fully recovered from the increase in wholesale. The price for autogas may reach a record of 0,55 USD/liter by the end of February, experts predict.

The price swing for the import-dependent Ukrainian fuel market is nothing new. In the wake of the rise in prices on the global market, it is not the first time when prices for steles are approaching the upper levels. This could have been avoided if the authorities had kept their promises and created real tools with which it would be possible to smooth out price surges, protecting the wallets of ordinary Ukrainians.

The matter does not go further than talk. And, oddly enough, today the only restraining factor in the growth of prices for gasoline and diesel fuel is the growing illegal market: dumping by fuel breeders and tax schemers. They have risen like a phoenix from the ashes amid a moratorium on checks, which was established by the Cabinet in connection with the coronavirus pandemic.

Related: Price of petrol, diesel fuel, autogas continue to fall in Ukraine

How the prices at gas stations have grown?

According to the A-95 Consulting Group, only over the last week, the prices for gasoline and diesel fuel in the filling station networks have grown by 1,8 USD / 100 liters. The average price of liquefied gas in gas station networks increased up to 0,5 USD.

“In January, prices in our network remained unchanged. The main factor affecting the cost of fuel is the price of oil and the exchange rate of the national currency since we import petroleum products. Compared to the last month of last year (December, - ed.), Oil prices have increased sharply The growth is over 15%. The price of oil reached 60 USD/bbl. This led to an increase in purchase prices for gasoline over 100 USD/tonne, for diesel fuel - over 60 USD/tonne, which provoked an increase in prices,” the press service of OKKO gasoline station informed.

“The most likely explanation for why we are witnessing it is the pressure of the "free money" mass. Stock markets, including commodities, amid the economic downturn due to the coronavirus pandemic, have become a safe haven for speculative capital," Serhiy Kuyun, director of the A-95 Consulting Agency, said in a comment to 112ua.tv.

The price bubble in the autogas market

The reasons for the rise in the price of autogas are somewhat different.

"At the border, quotations for LPG have already increased to 520 USD/ton. Suppliers are not shy, and against the background of the excitement, there are already offers for 545 USD/ton with delivery times of up to two weeks. The growth started from the price of 330 USD per ton of product. at the end of December," Vladyslav Kolodyazhny, CEO of GT Group, told 112ua.tv.

According to him, the upward trend in prices that we are now observing has no objective economic grounds.

Autogas is becoming more expensive due to global market trends.

"The price bubble burst in Asia in December-January. Then the prices of liquefied gas rose. They reached record levels for the season. As a result, the supply of LPG from the US and the Mediterranean were redirected to Asia. Europe had to work A cold snap has come, but there is no resource - there is nowhere to take it and prices have gone up by leaps and bounds. It should be borne in mind that in Europe propane is an alternative to traditional gas (methane), prices for which are also breaking records. All over the world, propane is used mainly for heating, and not for the production of autogas, as in Ukraine," says Kolodyazhny.

A number of local restrictions on the part of suppliers do not add optimism either: Tengizchevroil and Lukoil have cut supplies. Together, all these factors, against the background of the growth of Brest quotes, to which the contracts of Belarusian suppliers and Rosneft are tied, the expected shortage of TERM contracts (long-term supply contracts with formula pricing) leads to a shortage of product and, accordingly, an increase in prices, CEO GT Group.

Related: Croatia launches commercial use of LNG terminal, which could provide fuel supplies to Ukraine

Illegal segment dumping

As you know, Ukraine's own oil refining has long been destroyed and is preserved only at the only refinery – Ukrtatnafta, controlled by oligarch Ihor Kolomoisky. For this reason, the Ukrainian refueling fuel market has always been extremely sensitive to fluctuations and price jumps in the global market. But if in the past an increase in wholesale purchasing prices was instantly reflected in retail prices, this season is a unique situation.

"The jump in oil prices from 37 to 55 USD is quite serious. The wholesale market reacted to it clearly. The wholesale has won back the rise in oil prices literally to a penny. But we saw something that really surprised: against this background, the retail market in Ukraine not only did it not synchronize with the wholesale, as it always happened in the past but still goes with a big lag in price," Serhiy Kuyun told 112ua.tv.

According to him, the situation has several explanations: on the one hand, the desire of the networks to retain customers, since January was very quiet in terms of travel: first the holidays, then the lockdown.

“But the main reason why we did not see the synchronization of wholesale and retail prices is the pressure of illegal immigrants. The illegal segment has not only risen from the ashes like a phoenix but is also working on such an unprecedented scale, which we have not seen before. Let's be honest: illegal The fuel retail segment has always existed, but the scale it has acquired now is impressive! In our opinion, the reason for this was that a year ago, in connection with the coronavirus, the Cabinet of Ministers declared a moratorium on business inspections, and shadow companies literally lost their fear. checks, they are not in danger, the raids are no longer carried out, the tax authorities do not bother them. As a result, we have such an unprecedented rampant illegal trade and the benefit of the boogers as it is today," Kuyun said.

Related: No cheap gas in 2021: Why Ukraine cannot increase blue fuel production?

The expert assured that the A-95 Consulting Agency found out: 65% of the economy segment stations, or 2,800 filling stations, traded gasoline and diesel at zero or at a loss.

“It’s easy to calculate: we took purchase prices, compared them with retail prices. Subtracting minimum costs and discounts from the retail price, it turned out that these stations were selling diesel and gasoline at a price lower than the wholesale price,” Kuyun explained.

Are there really entrepreneurs who are ready to work in the fuel market at a loss, you ask. Of course not! The fact is that over the past year there has been a real renaissance of illegal fuel. If a legal business that pays all taxes begins to work in full synchronization with wholesale quotations, then it will begin to lose customers.

"People don't care who pays taxes and who doesn't. Even the issue of fuel quality is not the main thing for them. A person sees that on one stele the price of gasoline is 0,73 USD per liter, on the other – 1,1 USD. Clients flow to those who are dumping," Kuyun emphasized.

The expert urged the authorities to respond to the problem as soon as possible.

112 Agency

“It will not work for a long time to turn a blind eye to illegal sales. The indifference of the authorities to this issue will have the most serious consequences: at least in the form of non-receipt of billions of hryvnias in taxes to the budget. The consequences may be more far-reaching: the destruction of normal competition and white retail business, which, again, honestly fills the budget. I am not even talking about the environmental aspect of the combustion in internal combustion engines of a frank body that was manufactured without meeting standards," Kuyun warns.

Power's position

The fuel market in Ukraine has long been hostage to price fluctuations due to its extreme dependence on imports of all types of automotive fuels.

Related: Energoatom refuses to send spent nuclear fuel to Russia

President Zelensky’s team, like its predecessors, has not invented anything new except how to extinguish the fire of social discontent with rising prices for auto fuel, intimidating large networks with fines and Chinese warnings from the Antimonopoly Committee. Let's be honest: this has no effect. As soon as wholesale prices decrease, retail prices roll back to lower values. In the meantime, lawyers of the companies are fighting fines through the courts.

Recently it became known that in the course of the battle with the Antimonopoly Committee, the WOG chain, which was fined 4 million USD for an increase in prices for car fuel, was forced to bankrupt its legal entity, which unites fast foods operating on Intercity trains. This is the fourth legal entity of the network in the last six months, which was entered into bankruptcy proceedings. It is noted that the ongoing processes will not have an impact on the operational activities of WOG in trains – passengers traveling on the Ukrainian railway will continue to be provided with coffee and hot dogs.

“In general, the government gave up on the fuel market. As a rule, people remember about it only when a strong rise in gasoline and diesel prices begins in response to an increase in oil prices. Among all energy markets, no one cares about it: nothing is done for the revival of domestic oil refining, creation of a stabilization reserve, activation of sea supplies,” says Kuyun.

From time to time, round tables and meetings are held in the Verkhovna Rada, at which the arbiters of our destinies groan about the ruined oil refining and the need to revive it. In fact, nothing happens, since any such movements pose a threat to Kolomoisky's fuel empire, which has deep roots in the semi-state Ukrnafta. As reported, several times the authorities even considered the introduction of protectionist measures in the form of special duties on the import of auto fuel. But the Ukrainians did not allow them to play along with Ihor Kolomoisky, who came out to mass protests against the decision by which the established dictatorship of prices could be the only player on the market.

Related: Monitoring of fuel markets enhanced in Ukraine due to possible decrease of supplies from Belarus

For nearly five years, they have been discussing the creation of a stabilization reserve, with the help of which the state could come out with interventions of auto fuel purchased during the period of low prices and extinguish price jumps. By the way, the state could make good money on this, Kolodyazhny noted. To develop a model and rules for its functioning, several dozen working groups were created, hundreds of pages of minutes of meetings were written. But recently, activity in this direction has dropped to zero, market participants told 112ua.tv. The idea of ​​creating a stabilization reserve is no longer remembered.

You can understand the authorities: after the liquidation of the Ministry of Energy as an independent department, its restoration and personnel leapfrog at the post, acting minister, which lasts almost a year, breakthroughs threatening to turn into a disaster have happened in almost all key areas of energy. Against their background, the situation on the fuel market is still quite favorable.

“Let's be honest: against the background of other energy markets, a completely independent fuel, represented by 100 % by private capital, is the most prosperous. Unlike the electricity market, where consumers are about to be cut off due to lack of coal, fuel is stable at gas stations. In addition, the fuel segment is much less socially sensitive than the gas or electricity segment, which is consumed by both pensioners and socially unprotected segments of the population. It is believed that the car and its filling are the lot of wealthy people. Do you have a car? So you will deal with the problems yourself,” Kuyun noted.

After five years of discussions on the topic of the stabilization fund, its model has not yet been even chosen, Kolodyazhny said. According to him, only the construction of a large sea terminal, which could receive vessels with volumes of 20,000-40,000 tonnes, could radically change the situation for the better.

There is no clear strategy and policy for the development of the autogas market in Ukraine even for the next 3-5 years. Until this happens, serious investors will not come, who would not just build small transshipment bases, but parks of large tanks with storage volumes that allowed them to cope with price peaks.

Related: Ukraine imposes special import duties for coal, diesel fuel, liquefied gas

On the verge of collapse

The absence of clear and understandable rules of the game is clearly illustrated by the decision, contrary to sound economic logic, to impose duties on pipeline imports, through which cheap and legal high-quality diesel fuel was supplied to Ukraine. The authorities never concealed that the decision that led to the shutdown of the pipeline was dictated solely by the desire to strike at political opponents, who they believed were related to the supply. A striking example of inconsistency and excise reform, in which the essence was replaced by form, say market participants.

Another trick that scared businesses and investors to death was thrown out by the authorities quite recently. The technical regulations were adopted, which almost provoked a complete collapse in the autogas market. It was possible to stop it only through the efforts of market participants literally one day before the entry into force.

Related: Armed Forces officers with accomplices stole fuel from military unit for more than $370,000

"The regulations were drawn up in an extreme framework. There were no clear definitions: procedures, order, only a certain text. Everyone could read the text as he wished, as well as interpret it. The customs authorities, having no clear order, could stop the LPG consignments for sampling and checking. availability of certificates of conformity, and given the absence of certification centers, the entire resource would simply "hang" at the border until "further clarification," says Kolodyazhny.

Considering that this happened during the period of rising prices for gas stations, the market was expecting a real collapse.

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