Paltry fuel price drop reveals monopolies in Georgia
02 October, 2014
Paltry fuel price drop reveals monopolies in Georgia
Five leading oil product importer and distributor companies make up 95 percent of Georgian market. These include the Azeri state-based Socar, Wissol importing Greek product, Rompetrol Georgia taking in Romanian oil products, Lukoil mainly importing Bulgarian and Russian product, and Gulf that is focused on European product, reduced their pump prices on petrol and diesel on September 25. By today the most demanded Regular branded petrol that makes 70 percent of consumption market is available for GEL 2.02-2.14 per liter.
The Super and Premium brands are priced within GEL 2.27 to 2.32 and GEL 2.19 to 2.25 respectively. The diesel price benchmark starts at GEL 2.10 and is capped by GEL 2.31.


According to Vano Mtvralashvili, Chairman of The Union of Oil Products Importers of Georgia, this is the second price cut after the first 3 tetri drop early in August. The overall drop makes roughly 6 tetri [around 3 cents] or maximum 2-3 percent while the international oil prices dropped by almost USD 18 or 16 percent since Mid-July after it reached its yearly peak USD 115 per barrel in Mid-June and slid below USD 97 on September 24-25.
Soso Archvadze, an economic analyst, believes the Georgian price drop is not reflective of global trends. According to him, Georgian currency was stable within the reported period and once international oil prices shrunk by 15-16 percent Georgian importers might have halved prices. Archvadze believes the reason for the insignificant shift in fuel prices in Georgia compared to the international trend is monopolization and unfair competition of the Georgian market.
“The market still faces signs of oligopoly and oil importers are no exception. When big players can partly influence prices as we witness in Georgia, it is incomplete competition or cartel agreements,” Archvadze said.
Analysts also indicate on endemic problem of Georgian fuel market: when prices grow internationally Georgian importers jack their prices up immediately while they delay price drops for weeks and even months when the global price trend slides down. In the last case the importers’ usual explanation is that their reserves of oil product procured at higher prices are not expired and prices will drop after new procurements are made at lower prices. For some reason all importers procurements coincide in time and differ very little in price.
“There was about a 15 percent drop at international market and once Georgian currency was stable. The recent price drop should have been 40-50 percent of the international drop figure. But we have around a 2-3 percent drop,” he said. “Balance is not fair. Providers are dominated while consumers’ rights are ignored and the only way out, to restore the balance, is to boost competition and let new players into the market.”
But competition with the already acting well-based operators requires at least 30 million GEL of start-up capital for infrastructure development and securing due procurement contracts with providers abroad. And as banks normally shun start-up businesses in Georgia there is a vicious cycle of keeping the existing oil product market protected from newcomers for nearly a decade.
Economics expert Demur Giorkhelidze believes new market players might show up if there was fair competition and if cheap credits were available. “But there is no political will to let someone else enter the fuel market, banks will never admit this. It is easier to control few companies,” he said.

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RUB
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