The price of oil and oil products is increasingly becoming a factor of political stability in today’s world. The situation around Iran and Syria is so tense now that the US and UK governments are discussing the possibility of tapping their strategic reserves.
Worldwide energy problems have not bypassed Ukraine, either. The nighttime lights of gas stations, which this writer watched last Thursday night along the Zaporizhia-Kyiv highway, painted an absolutely mind-boggling picture that looked like the picket fence of a careless house owner.
This called up the same association in Serhii Kuiun, chairman of the A 95 consulting group. “The price gap on the market is so wide that you can’t understand a thing,” the expert says quite indignantly. “We looked into this situation and came to the conclusion: the more expensive the oil is, the higher the taxes are and the more profitable it is to bring in contraband and produce all kinds of counterfeits. How come a half of the market is very slowly rising and the other half is still playing at six-month-old oil prices which were 25 percent lower than those of today? This kind of economy can only be achieved today by way of taxation or, to be more exact, its optimization. If you run an illegal home-based facility, you will, naturally, pay no taxes at all. But you can’t make a quality product if you try to bypass the tax system. So counterfeiters are taking advantage of the fact that people who run short of money to buy normal fuel are ready to compromise quality. But saving two cents on a liter of gasoline will result in having to repair the automobile, which involves immeasurably higher costs. Yet many motorists are falling for cheapness.”
Leonid Kosianchuk, president of the Association of Ukraine’s Oil Product Market Operators, has a somewhat different opinion. According to him, oil products have gone up in price by 9.5 percent on the wholesale market over the past month, while retail prices have risen by an average 1.4 percent. So it would be economically justifiable to raise the gasoline price by 8 percent this month. The price of diesel oil could be increased by 4 percent because its wholesale and retail prices showed an increase of 4.6 and 0.4 percent, respectively, last month. The expert says even Privat group filling stations raised their prices last Thursday, even though they have achieved a 120-dollar edge over the rest of the market players owing to rent reduction and tax optimization. Moreover, Kosianchuk compares the cost of oil products and the purchasing power of individuals and says that, from this angle, prices have already overstepped every limit. He says gas station owners are aware of the fact that an 8-perent price hike will bring about a 15-percent drop in sales.
Yet Kuiun still looks optimistic. In his words, there was “a turmoil, a pandemonium” at “cheap” gas stations last year. Standing in the line were not only Zhiguli but also Mercedes and Audio cars. This is gone now. Kuiun quotes the head of the Shell retail chain in Ukraine as saying that he was sincerely surprised why the Ukrainians were rather indifferent to low prices at gas stations: “If this were the case in Europe, all the customers would be at these stations and the rest would be standing idle.” Kuiun believes the current situation on the retail market is partly the result of an evolution of consumer preferences. At the same time, asked by The Day about the government’s promise to purchase a sufficient number of laboratories that could regularly monitor the quality of fuel, the expert said: “They gave neither the money nor the laboratories – we’ve got nothing.” What worries Kuiun is the so-called spirit gasoline, now on the market. “Any substandard gasoline is in fact mixed with spirits,” he explains and recalls that there is a safe tax loophole for this in the law on alternative fuels. If you add 30 percent of spirit to gasoline, you will be exempt from excise duty and, allegedly, from the tax on profit for ten years. All you have to do is have a sample of this product tested just once. “You will be given a certificate, and this will allow you to do whatever you want, even to sell ordinary gasoline without an excise duty, for nobody controls you,” Kuiun says indignantly.
Kosianchuk is also dissatisfied at the government’s inertness. Speaking of the US experience of using the price slump to establish oil product reserves and then tapping these reserves at the price peak in order to earn and to stabilize the market, he disagreed that we should learn this. In his view, in Ukraine all this should be entrusted to professionals rather than to bureaucrats who are only concerned about an “airfield where they will make a soft landing after retirement.”
