The swing with oil prices ‒ amid tensions between the United States and Iran ‒ again flies up. The cost of a barrel of Brent oil on the London Stock Exchange ICE Futures has already reached $ 65.49. Given that this tension continues to increase, it can be predicted that “black gold” also will add to the price. At the same time, on July 1, the start of the reform in the fuel market is scheduled in Ukraine, which is unlikely to take place without surprises. How all these factors affect the wallets of ordinary Ukrainians, who fill their cars at the gas station?
The reform provides for the licensing of production, trade and storage of gasoline, diesel fuel and liquefied gas, the start of operation of the modernized electronic fuel management administration system (MEFMAS) and the launch of a system for monitoring its actual turnover and residues in excise warehouses. As well as increasing responsibility in the form of considerable fines for illegal operations with fuel. These changes were adopted at the level of the law in November last year. Experts note that the new “rules of the game” in the fuel market are aimed primarily at clearing it of falsification and various schemes that wash out tremendous sums from the treasury in the form of under-provided taxes.
Reform as a fight against the shadow sector
“Finally, the market waited for this reform, but it still needs to be implemented,” Serhii Kuyun, director of the A-95 Consulting Group, noted in a commentary. “This must be done unequivocally because illegal immigrants have already captured almost 50% of the market of liquefied gas, who sit in the shade and sell fuel there without cash registers. Huge amounts of diesel fuel are also in the shade. A lot of mini-refineries flourished again, they began to rework condensate of unknown origin and quality. Fuel market runs in the shade. And reform is intended to stop this process and finally introduce European practice there.”
However, the reform itself is not so simple. Firstly, the Verkhovna Rada, having adopted the bill number 10359 in early June, postpones fines until next year (and this is about 500,000 UAH) because of lack of a license. Like, since last November, not everyone has had enough time to collect the package of documents that are needed for obtaining a license. For example, the head of the Parliamentary Committee on Taxation and Customs Policy, Nina Yuzhanina, noted that there are not enough separate documents to obtain a license for storing fuel in most business entities, including agricultural enterprises, mining companies and trucking companies. Therefore, they need the time, until January 2020, to collect documents.
And in a few weeks, the government began to worry about the fate of a small business, which, according to the Prime Minister Volodymyr Groysman, is not ready for the introduction of fuel storage licensing. Therefore, at a meeting of the Cabinet of Ministers, there was a thought that it was already necessary to postpone also the introduction of licenses. The Prime Minister is convinced that the law, in any case, should facilitate, and not complicate the lives of people. And he promised that the government would make such a request to the Verkhovna Rada, although he expressed doubt that this could be done before July 1, since “the Parliament is dealing with other issues”.
True, the Committee on Taxation and Customs Policy of the Parliament considers that the postponement of fines for lack of a license is enough, but the reform itself should not be postponed. On the eve of the above-mentioned government meeting, the head of the relevant parliamentary committee, Nina Yuzhanina, noted that the by-laws, related to the introduction of changes to the electronic administration system for fuel sales from July 1, 2019, are not ready. Therefore, she appealed to the social network to the head of Government with a request to oblige “the ministries that must ensure this process, allow to launch an electronic system, to fulfill their direct functions so that it would be good both for business and for the budget, so that it would receive funds”.
That it is impossible to delay further, they are convinced in the Oil and Gas Association of Ukraine (OGAU), because “a reform that can lead to a sharp reduction in the volume of the shadow fuel market, an increase in tax revenues and an improvement in the quality of petroleum products for consumers” will once again fail. For now, according to OGAU, at least one and a half thousand gas stations and an unspecified number of warehouses with petroleum products operate in Ukraine with violations. At the same time, the volume of sales of fuel through illegal fueling stations, they convince in the association, reaches 40 thousand tons. The shadow market, in particular in the segment of diesel fuel, is 20%, and liquefied gas ‒ 30-50%, depending on the region. If we talk about the past year, the approximate losses of the state and local budgets are estimated by experts of the Oil and Gas Association at almost 10 billion UAH.
Will the license hit the pricing?
All this, of course, is very important, and it’s necessary to solve it. However, for the average consumer doesn’t know much about the intricacies of the fuel market and the local “rules of the game”; it’s more important to keep fuel prices at least at the level at which they are now because they already hurt the wallets. If you look at the cost of a litre of the most popular gasoline brand “A-95”, then the picture emerges as follows. On average, a litre of this gasoline today costs 29.5 UAH. The cheapest ‒ 26.99 UAH, the most expensive ‒ 31.99 UAH. The average price of a litre of diesel fuel is not much less ‒ 28.29 UAH, prices vary ‒ from 25.59 to 30.99 hryvnias. Liquefied gas, of course, is cheaper, it costs an average of 13.5 UAH per litre, ranging from 12.9 to 14.9 UAH, depending on the gas station.
“Prices in Ukraine directly depend on many factors, but there are three main ones,” Gennady Ryabtsev, Director of Special Projects of the Psyche Scientific and Technical Center, explained for Opinion. “Since we buy about two-thirds of the petroleum products that the Ukrainian economy needs, the first factor is the cost of these petroleum products at our border. The second factor is the currency rate since we buy oil products for currency. And the third is the level of supply and demand. That is, the price also depends on whether there are enough oil products in the market to satisfy all needs. And sometimes it is enough not only the shortage of fuel itself but even the talks about that the shortage is coming. In this case, there is usually a so-called rush demand, which entails a rise in prices. For example, recently such a rush of demand arose when conversations began to ban Russian exports.”
Although in fact, a fuel market expert notes, there was no ban as such, but only a change in the procedure for processing export batches of petroleum products that came from the Russian Federation, including in Ukraine. “If earlier these consignments were drawn up through the customs authorities of the Russian Federation, then from June 1, they are drawn up through the Russian Ministry of Economic Development, and moreover, it should be done every month,” Gennady Ryabtsev stressed. “It can also be used as another reason to change prices at Ukrainian gas stations.”
So, you need to take into account the cost of petroleum products at the border, the hryvnia rate and the level of demand, which is determined not only by how much fuel there is in fact, but also by the level of all sorts of speculations around its formation. According to Gennady Ryabtsev, neither the price of oil, which, although changing, is insignificant, or the rate of the national currency, which is more or less stable, in the near future will affect the cost of a litre of fuel.
“Although usually under such conditions, traders try not to touch prices in the summer, there is one factor that I haven’t said yet, but it can be a real nuisance,” the fuel market expert believes. “The point is that the state periodically changes something in the market. This can be the level of taxes or the order of registration of parties, or they introduce some prohibitions. Namely, from July 1 of this year, the “rules of the game” in this market should be changed. The licensing of production, import and trade in petroleum products will be introduced. That is, every company that sells gasoline, diesel fuel, and liquefied petroleum gas that stores, transports, produces, or imports it, will be forced to take a license to carry out this activity. And even though the cost of a license is insignificant here, in order to obtain it, you need to collect a dozen different documents and certify these documents in five different executive bodies. Therefore, the very fact that all market participants need to run and reassure these new pieces of paper will necessarily lead to certain problems.”
According to Gennady Ryabtsev, it can strike the prices that are unlikely to be less. “Therefore, despite the absence of objective grounds and reasons for the fuel price hike, this change in the order of operations in this market can lead to an increase in the cost of products in the near future. And what will be a rise in price, will depend on what size will be the problems associated with the execution of these documents.”
There will be no order without level gauges and flow meters
Serhii Kuyun has a different opinion on this. He believes that the market is now full enough, and there is no reason for the price to start to go up. He believes that even the need to issue a license does not affect prices. “There is enough product in the market, it was delivered specially for the summer when demand is growing,” he said, “and prices are now even lower than they were at the beginning of the year when their peak was observed. Therefore, we should not expect shocks, there would not be any. Even the need to issue a license from July 1 of this year will not lower or raise the price. However, I want to note separately that most of all the price depends on what processes are taking place in the world oil market.”
Licenses are only a part of the reform of the fuel market, and not the most significant one, the expert explains. “By adopting a package of changes on November 23 last year, the Parliament launched a new stage in the reform of the fuel market,” Serhii Kuyun noted. “It is not enough to pass the law. In order for it to work, you need to develop and adopt a whole package of by-laws, for which the whole 7 months were allocated. Market participants were given the same time for preparation, after which, from July 1, 2019, licensing of wholesale and retail trade in petroleum products and storage activities should be introduced. That is, there was more than enough time.”
To obtain a license, they explain in the Oil and Gas Association of Ukraine, one does not need any new papers. OGAU President Nelya Pryvalova clarifies the list. According to her, this is a document on the land, an act of commissioning or a document of ownership and permission to operate an object of increased danger. Therefore, OGAU is convinced that those, who work in compliance with all the norms will receive permits licenses quickly and automatically fall into the public list of licensees and wholesale/retail fuel production/storage sites on the State Fiscal Service website.
And the norm, which is capable of really becoming this new “game rule” in the fuel market and changing it completely, OGAU considers control over the transportation of fuel. The Consulting Group “A-95” explains that if the reform is launched, every fuel truck that goes with fuel will be recorded in excise invoices and will be automatically included in the public list on the SFS website. “This will make it easy to check whether a car is carrying legal petroleum products or not,” Serhii Kuyun said. “So far, both fake and unaccounted fuel are transported by vehicles.”
According to the director of “A-95”, this system will work correctly only when measuring instruments work simultaneously. “Therefore, the most important thing is that level gauges and flow meters are installed on all tank farms, on all warehouses and tank trucks. The first ones are in the tanks, the second ones are the counters in the places of fuel supply. Ensuring such total control over the movement of fuel so that petroleum products cannot get into the system from any other place is the most important thing. At the same time, the electronic administration system for the sale of petroleum products is being modernized. If we summarize, everything should become as it has become in Europe long ago, when it is completely visible how the fuel goes from the border to the final consumer, with the payment of the corresponding taxes. While this is not there, we have a large shadow segment in the fuel market. And therefore, the budget loses funds, and our refineries do not have the opportunity to develop normally, and there is no civilized competition.”
Text by Larysa Vyshynska