Crusading against fake lubricants
23 September, 2010
Crusading against fake lubricants


Georgian motor car oil importers and distributors Appeal to Georgian government to solve the problem of fake engine oil that is infesting Georgian market. The problem affects consumers’ interest and the state budget likewise, as the Union of Oil Product Importers and Consumers (UOPIC) of Georgia assures. Some experts doubt that the launch of crusading campaign against oil counterfeit is a latent attempt of big market players to oust petty fry off the market.

The problem of counterfeit motor car

engine oil has been a permanent problem at Georgian market for years but it became acuter after 2005 when the mandatory certification of imported oil and lubricants was revoked under liberal reforms of the rose-revolution-born-government. Certification of oil and oil product is based on volunteer principle today. On the other hand there is no special state service responsible for protection consumers’ rights and authorized to control standards and quality of the product put on sale at Georgian market.

As a result the fake goods and product of suspicious quality infested Georgian market. Smart counterfeiters focus on staple goods that are in the biggest demand at the market including engine oil and lubricants.
The fake car oil badly affects the engine and halves its exploitation period that leads to unforeseen outlays and expenses, the sector pundits say.   Meantime all sorts of oil including the premium, middle and low quality segments are faked.
According to Vano Mtvralashvili, Head of the Union of Oil Product Importers and Consumers, the motor oil falsification ramifies in three main directions. On the one hand the service stations where the engine oil is changed trades with the second hand oil of suspicious origins filled in tanks and boxes of famous brands including Aral, Castrol, Shell, TNK-BP etc.
Another falsification method is to fake the country of origins. Quite often oils of suspicious origins are marked as EU-made while the import lags behind EU standards. However EU import quality is always guaranteed, Mtvralashvili says, but one cannot trust the quality certificate of CIS import, Iran and Turkey.

Moreover, low standard lubricants designed for obsolete soviet time industrial techniques [like tractors and engineering tools and machines] are imported quite legally through all due customs procedures. These lubricants that are mainly imported from Iran and Turkey are quite innocent if they are used according to their intended purpose [to lubricate industrial machines] but they are misused actually and sold for motor car engine oil. Besides this low quality lubricant that freezes at +1 degree Celsius and costs GEL 2-3 are sold as famous branded oils for much higher price. For example for the price of the premium branded Aral that costs GEL 100 per 4 liter tare.
“This cheaper industrial lubricant responds it standards in fact if it is used for industrial purpose, but its freezes at +1 degree, while the standard freeze point of car engine oil is -8-10 degree. So it means that it will froze in the engine in winter, I do not speak on other defects. Therefore we say that this kind of lubricant should not be on sale at the market,” Mtvralashvili said.
According to him, the volume of falsification reached 30-50% of the market and cut down sales of original branded product by 10-25% that forced up to 15-20 companies to join efforts and appeal government to solve the problem. Oil importer companies did not acknowledge slump in sales with Georgian Journal, they assure that the key problem is undermining the brand reputation, and violation of consumers’ right.
But Mtvralashvili believes that if there was not a problem in sales reputable market players would not appeal for help. They have sent a letter to the Ministry of Finances of Georgia (MOF) with the request to solve the falsification problem and met with the top officials at MOF past week.  MOF promised to help. After all the falsification is a criminal affecting the interests of consumers who buy the fake  product that halves the exploitation period of a car;  and the state budget is at loss as falsifiers elude taxes.
Legal motor oil importers and traders are excised by GEL 400 per 1tons of oil, besides they pay 18% of the Value Add Taxes (VAT). Falsifiers sell GEL 2-3 worth lubricant for GEL 100 worth motor oil without registering this price in the tax declaration and elude VAT. Liberal laws of Georgia allow them to practice this scheme. Before the rose-revolution customs demanded special declarations where one had to indicate where the imported goods  were used and sold. But this obligation is revoked by liberal reforms and nobody can trail whether or not the imported goods are used according to their intended purpose.

Importers and distributors of offended brands claim they cannot sue falsifiers via court because it is related with unreasonable expenses on one hand, and frequently it is impossible to find out the falsifiers as far as many of them are so small that are not even registered as business. Besides they trade at so called Bazrobas in the outskirts of towns and regional centers and frequently change trade places.
“It is up to the state to combat falsification,” Davit Maisuradze, Director of Geotronic, an exclusive importer and distributor of Aral [the premium engine oil] in Georgia, told Georgian Journal. “If we sue any of these falsifiers that counterfeits for example GEL 300 worth oil of Aral we will spend about GEL 3-4 thousand at court, it is not profitable. The issue needs a more complex approach, the state has to solve the problem, the administration and legislation must get stronger.” 
“Is Shell supposed to file a lawsuit against unknown petty individual entrepreneur [a street vendor]?” Giorgi Mshvildadze, Director General of Tegeta Motors [importer and distributor of vehicle tires, batteries, spare parts, oils and lubricants including Shell, Meguin, and TNK-BP], asked Georgian Journal. “You even cannot find it, it trades at several places. I will not go to court; it is up to the state to handle with the falsification problem. Yes falsifiers misuse my brands but they also deceive consumers. There should be a special service protecting consumers’ rights that will be regulating the problem.”

Davit Narmania, economic analysts with the Centre for Economic Problems Research (CEPR), agrees that falsification is a criminal and fiscal crime that affects the state budget and only creation of the special service protecting consumers’ rights [either at MOF or ministry of economy] can solve the problem, but he doubts that big motor oil market players use now the falsification problem to enhance their market share on the expense of ousting petty traders.
Narmania’s standpoint is that the cheap motor oils take bigger segment at Georgian market compared to the branded expensive oils. The reason is Georgian car park is obsolete and uses cheap oils mainly. Now big fishes decided to enhance their share by talks on falsification and bad quality of motor oils that is an artificial interference in the market actually.
“Big players enjoy high profit margin, while the faked oil is sold for lower price in fact and “competes” big market players. That’s the reason they became nervous now. For example, one can buy a 6 liter tare of the motor oil of Tegeta Motors for GEL 110-120 at Eliava Bazroba while it costs GEL 150 at Tegeta Motors’ trade outlets. ” Narmania said.
“Falsification is a crime and it should be punished no matter who practices it a big or a smaller trader,” Levan Kalandadaze, Executive Director of Association of Georgian Small and Medium Sized Enterprises, said.

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