This spring, A95 gasoline is looking to break the UAH 9/l barrier—which could force 74% of Ukraine’s drivers off the roads
The current surge in gasoline prices is first significant rise in the price of gas in the past two and a half years in Ukraine. Since November 2010, the price at the pump has grown nearly 10% for liquid gas, 15% for A95 gasoline, and nearly 20% for diesel. In the first week of February, the price of high-octane gasoline surged close to UAH 9 per liter, then stabilized at UAH 8.73. Most experts are certain that this freeze is temporary. According to AUTOConsulting, 52% of drivers have already been driving less as fuel has become more expensive and as it continues to rise, it could force 74% of Ukrainians to cut any “unnecessary” car trips.
To no one’s great surprise, Premier Azarov blamed these increases on fuel importers.
The Anti-Monopoly Committee (AMC) has already launched an investigation into the rising cost of A92 and A95 gas. It has focused on the Alliance Holding, part of the network owned by the Shell group and Russia’s Alliance group; Continent Nafto Trade Ltd., which owns the WOG chain of gas station chain and is part of the Western Oil Group co-owned by businessman Petro Dyminskiy; OKKO Naftoprodukt, part of the L’viv-based Halnaftogaz Concern owned by Vitaliy Antonov; LUKOIL Ukraine and Kerscher, which runs the retail arm of TNK-BP owned by Mikhail Fridman, Leonard Blavatnik and Russian billionaire Viktor Vekselberg.
Oddly, the Committee showed no interest in chains controlled by Ihor Kolomoiskiy’s group, including ANP, Avias, Sentoza and others. It looks like Mr. Kolomoiskiy was able to cut a deal with the government, which was not too happy about his oil business, and to find common ground with the Donetsk oligarchs.
So far, the Premier has been accusing other players on the market without much evidence: the AMC has already postponed issuing a ruling in this case three times—surprising few, since it is the Government itself that has largely caused the rise of fuel prices. Even the Ministry of Economic Development acknowledged this in one of its official letters, where it wrote that gasoline prices were rising mostly because the excise on imported oil products was raised.
In fact, the Government raise the excise tax on gasoline 37.9%, to EUR 182/t and 40% for diesel, to EUR 42–90/t, and slapped an excise of EUR 40/t on imported liquid gas, which had previously not been taxed. Another factor affecting the fuel price is a renewed surge in the cost of oil worldwide. In December 2010, the estimated year-end price was US $10 higher than the original projection of US $85/bbl. According to estimates from Serhiy Kuyun, Director of A95 Consulting Group, high-octane gasoline should have cost UAH 9.00-9.15/l at Ukraine’s pumps by the beginning of 2011 based on all price components. Mr. Azarov himself explained the reasons why prices stabilized at just below UAH 9: “We met with the key players, who agreed to stick to the set price corridor.” The big chains played by the Government rules for a while, so A95 cost no more than the agreed UAH 8.76/l. But, come February, prices began to grow again.
“This corridor was based on the old excise rate without reflecting the growing cost on a pro rata basis,” explains Ihor Cherniavskiy, CFO of the Kyiv-based KLO chain. “Prices need to be recalculated based on this data.” In the first week of February, the cap was breached by OKKO (UAH 8.95/l), KLO (UAH 8.90/l), Shell (UAH 8.95 /l) and WOG (UAH 8.90/l). They all sell high-end gasoline processed in the EU. Other market participants are quite likely to follow suit now. But those who work with Livela, which started importing oil products tax-free by court decision, could now find themselves in an advantageous position and be looking at windfall profits.
Average gas prices at major gas station chains as of February 2011, UAH/liter