Murky waters of fuel prices
03 February, 2011
Murky waters of fuel prices

Prices on petrol and diesel increased by more than 10% starting past December  up to the end of January in Georgia, thus fueling up the yet tough inflation pressure of 11%. Oil and oil product importer companies ascribe the reason to the international market trends. Some economic analysts doubt the internal monopolies are responsible for the price hike more than international market trends.
Prices on petrol and diesel increased by approximately 8% at international market starting December 10, 2010 to January

17, 2011 from USD 813. 25 fixed per ton of petrol to USD 884.5 respectively. The price fluctuated on January 27 and 30 however going down from USD 884.5 to USD 862 and 855 respectively. But Georgian market price steadily went ahead reaching 10% [and even exceeding it in some cases] of price hike.
Accordingly prices within the reported period were jacked up by 15-20 tetri per liter by this end-January bringing prices as high as following: on Super branded petrol product from GEL 2-2.05 [fixed per liter in December of 2010] to GEL 2.20; the most demanded Euro Regular crept from GEL.1.85-1.90 to GEL 2- 2.05; and Euro diesel hiked from GEL 1.95-2 to 2.05-2.25.
The Union of Oilproducts, Enterprises, Importers and Customers (UOEIC) claims all is tuned with the international trends of oil market as well as with the national currency devaluation against the US dollar  on which Georgian oil and oil product importer companies depend. But some economic analysts think the fish stinks from the head and either Georgian importer companies lack due management skills or Georgian consumer suffers of monopolies’ pressure [rather than of international trends].
Soso Tsiskarishvili, an economic analyst, wonders how it is possible that when the oil price reached its peak of USD 140 per barrel in summer of 2008 the price on Super branded petrol exceeded GEL 2 per liter just for a short period, while today when the oil price stands at USD 98 per barrel approximately the Super’s price in Georgia exceeded GEL 2 even a month ago. He thinks that the reason is the rampant monopolist companies lobbied by government and the free market trends have less to do with the price hike.
Oil product importer companies say the reason is the devaluation of Georgian national currency against US dollar on the one hand, and on the other hand that they cannot make big reserves when the price goes down. Vano Mtvralashvili, Head of the Union of Oilproducts, Enterprises, Importers and Customers, upholds the companies.
“Georgian national currency in July of 2008 stood at GEL1.4 against USD1 while it stands as of GEL 1.8 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 adding that the way out  will be a local refinery that may enable  companies to cut down prices and not to think of making reserves and ship transportation cost.
Davit Narmania, Director Executive of the Center for Economic Problems Research, disagrees with the currency fluctuation factor as he believes that the inflation rate offset the currency difference.
“Yes. Georgian currency was GEL 1.4 to US dollar in 2008 but the inflation was 4% then while today inflation exceeds 11%, it offsets the currency difference [between 2008 and 2011] and comes out that the fuel prices are higher today when the oil price is USD 98 per barrel than they were in 2008 when the oil price was USD 140,” he said.
Narmania thinks the monopolist position of SOCAR is the reason of fuel price hike in Georgia in fact as other companies can import only restricted volumes of oil product agreed with SOCAR. Otherwise it seems quite strange that Georgian oil product importer companies always buy big volumes of product when the international prices are high and smaller volumes when the prices are down. 
“The alarming fact is that as far as prices at international market go high prices in Georgia follow up immediately; but when international prices slump our market prices follow reluctantly by big intervals. Companies reason the latter usually that they have big reserves bought in higher prices, on the other hand when [international] prices are up they follow immediately claiming that they are run out of reserves bought in cheaper prices. Are they bad managers actually?” Narmania asks. “Or is there something more reasonable like nobody can import more than the volumes agreed with SOCAR?”
On the other hand the Azeri-based SOCAR that imports oil product from neighboring country to Georgia by railway offers prices similar to other companies like Wissol Georgia and Rompetrol Georgia for example that import oil product from Italy and Romania respectively by ships that is much more expensive compared to railway. Mtvralashvili assures the transportation cost does not make big difference.
“All make a sense in price-making policy including transportation costs, inflation, and currency fluctuation,” Narmania argues.
Nodar Khaduri, an economic analyst thinks that apart from market monopolization the reason fuel prices soar in Georgia is demand. He reminds the free market principle that Demand defines the Price and believes SOCAR sells as high price as other companies because the product is sold.

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