Georgian fuel price journal
11 November, 2010
Georgian fuel price journal

Usually, fuel prices at Georgian market increase in compliance with the international market trends. However, they do not follow the international trends as eagerly when the price slumps occur. Economic analysts say the reason is the monopolization of Georgian market and lack of petty market players. Fuel market players argue the reason is volatility of international oil market trends and increasing market demand.
Prices on fuel remain unchanged in Georgia as of yet irrespective the past week’s price-hike at international

oil market fixing USD 86-88 per barrel – the highest price during the last two years starting in July of 2008 when the price reached USD 145-147 per barrel. However they most probably will go higher if the international price-curve keeps creeping upward for more than a week.
The problem is that prices for fuel at Georgian market almost simultaneously duplicate the price hike trends but ignore the price slumps. Prices on petrol stands at averagely GEL 2 per liter in Georgia today against the backdrop of USD 80-88 of international oil price and the price was similar GEL 2 in 2008 for example when the oil price reached its peak of USD 145.
Prices for petrol and diesel increased by GEL 0.3 - 0.5 at Georgian market in mid-October in compliance with the sharp price hike at international market. After flickering up and down between USD 70-78 during the year, the international price trend fixed USD 81-83 per barrel early in October.
Accordingly the international price for petrol fluctuated between USD 685 - 713 and the price for diesel - between USD 640 - 675 per ton during September of this year based on PLATT’s data. However, the price sharply increased [by approximately USD 100] to USD 773 and USD 723 per ton of petrol and diesel respectively, which jacked prices up in Georgia likewise, Vano Mtvralashvili, Head of the Union of Oil and Oil Product Importers and Consumers (UOPC), explains.
And by today the price at Georgian market for the super segment of petrol stands at GEL 2. 05 per liter, the premium and regular petrol costs GEL 2 and GEL 1.90 respectively, while the super quality diesel cost equals the regular petrol price actually - GEL 2.
‘Goods in Georgia are getting only expensive and never get cheaper because the basement [of Georgian economy] is not free market principles but the appetite of corruption; and this appetite is the reason petrol prices was GEL 2 in 2008 and stands at GEL 2 today,’ Soso Tsiskarishvili, an economic analyst, told Georgian Journal.
Mtvralashvili finds this argument incompetent. He insists that it is impossible to halve the fuel price today due to currency depreciation risks. 
“Georgian national currency in July of 2008 stood at GEL1.45 against USD1 while it stands as of GEL 1.78 against USD1 today. This is an important part of price-making and how is it possible to cut down fuel price against the backdrop of fluctuation of Georgian national currency?” He asks.
Meantime the bigger part of Georgian fuel market is taken by Azeri fuel imported from the neighboring Azerbaijan by Azeri national SOCAR energy company. However, Azeri fuel is sold nearly in the similar price as the petrol and diesel imported from Romania and Italy by Romepetrol Georgia and Wissol Georgia for instance.  Wissol and Romepetrol branded super segment petrol and euro diesel costs GEL 2.05 alike while SOCAR fixes GEL 2.05 for its equal quality petrol and diesel as well as other products irrespective that transportation of fuel imported by railway from the neighboring Azerbaijan very likely is much cheaper than fuel imported from oversee countries via ships that is acknowledged as one of the most expensive transportation means.
On the one hand Georgian Railway LLC fixes preferential tariffs [approximately USD 12-13 is fixed per ton of cargo transported across 300-400 km to Azerbaijan while averagely USD 20 is fixed per ton of cargo transported on 300 km generally]. The reason is Azerbaijan-bound cargos make 80-90% of Georgian cargo turnover and account for 16-17 million tons per year.
Mtvralashvili plays down the transportation costs as a decisive factor in this case. He assures that difference between transportation of Azeri fuel and fuel imported from Romania and Italy is not as important as it seems actually and that all oil importer companies operating at Georgian market face almost similar expenses including SOCAR Georgia.
“They are similarly taxed and imposed by excise, besides no matter fuel is Italian or Azerbaijani all are sold according to international market price,” Mtvralashvili explained to Georgian Journal. “Besides the product is sold in the proposed prices and that’s the reason the price is not cut down actually.”
Nodar Khaduri, an economic analyst, thinks fuel prices at Georgian market do not diminish due to monopolization of the market plus the market demand. However he acknowledges that the unstable international market prices coupled with the currency fluctuation risks also appear decisive in the price-making policy.
“Entrepreneurs do not know what happens in future therefore they do not cut down prices when the international market prices go down. The similar can be said of currency depreciation risks, and business tries to lay all risks on consumers [via keeping high prices] and they achieve success due to imperfect market competition – there are so few oil product importers at Georgian market that they easily can manipulate the situation,” Khaduri explained to Georgian Journal.
There were more than 50 petty companies importing and trading with the fuel before Rose Revolution, however big market players took an advantage by developing an expansive petrol station networks throughout Georgia and the number of  fuel market operators reduced to 7 including SOCAR Georgia, Wissol Georgia, Romepetrol Georgia, Lukoil, Senta, and Eko Georgia.
“If there were bigger number of petty companies the situation would be different. But petty companies cannot enter the market because they cannot compete with the big market players like SOCAR and Wissol for instance. Petty fry cannot afford to import fuel from oversea countries like Italy and Romania because it demands huge resources [one ship costs USD 3-4 million approximately] and is affordable to big companies alone. To import Azeri fuel bypassing SOCAR is impossible because according to Azeri law SOCAR has an exclusive right on export, and is supposed to sell its product cheaper than it sells via its network in Georgia?”, Khaduri asks.
Mtvralashvili disagrees with him.
“How can  we speak of monopolization of Georgian oil market when there are about seven companies operating there. You cannot name any other market where operate much more oil importers  than that. As to ousting petty business off Georgian market it is an international trend today, all big businesses swallow petty ones globe over and we cannot blame oil companies to this trend. Besides, petty companies disappeared because many of them were registered in off-shore and nobody could control where they were paying taxes and a lot of money was lost to the state budgets of both Georgia and Azerbaijan. And SOCAR established its own company in Georgia instead.”
Khaduri stresses that demand is decisive for price-making policy whatsoever.
‘SOCARI price is as high  as that other companies because the product is sold, demand defines the price, business is not a charity organization,’ He said.

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