Georgian Fuel Market Expects Changes
24 October, 2013
Georgian Fuel Market Expects Changes
Georgian fuel market, believed to be monopolized, is expecting changes after a new liberalized contract on railway cargo transit has been concluded between Georgia and Azerbaijan recently. Some sector pundits think the contract is not sufficient to liberate Georgian fuel market from the monopolies, unless proper competition law is adopted and entrepreneurs get equal access to financial resources.
Early in October, Georgian Energy Minister Kakhi Kaladze reported to media that more Turkmen oil and oil products will be imported to
Georgian market, since a new and more liberal transit agreement was reached with Azerbaijan, Georgia’s trusted partner country in the South Caucasus transit corridor connecting Asia with Europe. Carriers and cargo shipping businesses have been pointing to existing latent monopoly on Azeri side that befuddled transportation of oil and oil products from other Caspian oil producing countries on Azerbaijan-Georgian railway passage for many years. This led to monopolization of Georgian fuel market with around 75% of Azeri dominance and unreasonably high prices, Demur Giorkhelidze, an economic analyst, pointed out in his interview to Georgian Journal. Most of economic analysts suspected that previous administration of Georgia had a share in profits from the lucrative oil products trade.
Therefore, one of the major pre-election covenants of Georgian Dream, the ruling party that won parliamentary elections to former ruling National Movement last fall, was to fight monopoly and cut fuel prices down by at least GEL 0.20. As a matter of fact, prices really dropped by the promised figure since September of 2012 to September of 2013 from average GEL 2.15-2.40 and GEL 2.15-2.40 to GEL2-2.20 and GEL2 -2.20 on petrol and diesel respectively. Oil importers explain it by the price slump on international market. The administration believes this is a result of releasing business from the governmental pressure [practiced during the ex-power] and predicts further drop in prices as a result of new transit agreement with Azerbaijan that unfolds prospects to import more oil product from other countries, in particular, from Turkmenistan that made around 2-3% of total import of oil products in Georgia against 33% and 26% made by Romania and Azerbaijan respectively. The latter is the official market leader in diesel import however consumer believes almost 80% of petroleum is also of Azeri origin.
Vano Mtvralashvili, Chairman of The Union  of Oil-Product Importers, does not expect a breakthrough on Georgian fuel market in near future as he believes the market is saturated: five leading oil importer and distributor companies making up of 95% of Georgian market [such as Azeri state-based Socar, Wissol which imports Italian oil products, Rompetrol Georgia that supplies Romanian oil products, Lukoil mainly importing Bulgarian and Russian product, and Gulf importing European product] are scarcely expected to shift focus to Turkmen product as far as they all have long-term contracts and obligations with their partners whereas the petty players cannot change the picture. New players may have had their say but limited access to financial resources ties the hands of the entrepreneurs, who are willing to compete with already well-positioned market leaders.
“One or two petrol stations cannot change the situation; if a new player enters the market, it will need to create a network covering entire country to compete with operating leading network companies that would that have ensured consumers thanks to their service and product quality. These two points and not the price are decisive actually. There are few petrol stations selling product by 5-10 Tetri cheaper but sales are much bigger at brand companies,” Mtvralashvili told GJ. Giorkhelidze believes new players can emerge only if free market rules are observed.
“Trust deals still go ahead. Personally I know people who want to enter this market but banks that have shares in the business with the operating monopolists, withhold credits to the new players; they will never admit them in. Only removing transit problems will not change the picture; the authorities should introduce proper competition law on local market and ensure equal credit access to all,” he said. Nevertheless, consumers hope for better. “If Turkmen diesel oil will have an unfettered access here, it will cut prices down significantly, I look forward to it”, Kote, a taxi driver, said on behalf of most of his colleagues, interviewed by GJ.

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