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Oil Companies Sell Fuel for 35 Tetri More to Retail Clients

Gulf earns 30 Tetri from sales of only one liter of fuel. Economists and field experts have long been talking about the drawbacks and unhealthy environment of the fuel market. As a rule, oil companies do not accept criticism.

Their lobbyists frequently assert that the companies receive minimal profits, and that there is healthy and meaningful market competition. Today we have a situation where domestic oil prices started rising along with growing oil prices on the global exchange.

At a glance, there is a close correlation with the international market, but we should not forget one important detail. As a rule, the Georgian fuel market shows sensitivity only in relation to retail sales, as fuel prices do not change in for corporate and consolidated clients. Fuel prices are much cheaper in this segment, when compared to the retail sector. Paata Bairakhtari, the vice president for the Association of Young Financiers and Businessmen (AYFB), discussed a similar case.

“Today the fuel market is open, but artificial barriers were replaced by natural barriers for new players. I mean the urban disposition that six giant oil companies have. The point is that these companies have almost entirely occupied the central part of the city, where the population is mainly concentrated. Consequently, new players are limited in providing real competition to these six giant companies. My opponents frequently say that the market prices are competitive and they respond to economic tendencies. I will refer to a simple case.

Analysis of retail and corporate prices shows a huge difference, which would be impossible in a healthy market. For example, the GULF company sells a liter of Premium fuel for 2.29 GEL in the retail sector, while in the corporate segment, for example, to Tegeta Motors, the same category of fuel is sold for 2.04 GEL, despite the fact that the company spends the same amount of money on the technical aspects of the fuel sales. As a result, retail prices are higher by 25 Tetri compared to corporate prices. It is true that, in general, corporate clients enjoy preferential rates, but no company can sell fuel to corporations for a net loss. Therefore, this signifies that the GULF company receives at least 29 Tetri profit for a liter of fuel from the population, and this is a genuinely huge margin,” Bairakhtari noted. We have contacted the GULF company, and the vice president, Nino Jibladze, confirmed that corporate clients genuinely have preferences. “We provide various preferences for corporate clients. As for this specific case in relation to the Tegeta Motors company, I do not know this agreement and I cannot comment on this issue,” Jibladze said. The Union of Oil Importers asserts that the price difference is preconditioned by sales of guaranteed reserves. The organization’s head, Vano Mtvralashvili, explained that a company accepts even extremely low profits for large-volume sales.

“The difference between retail and tender sales is that in tenders we have guaranteed sales of fuel in huge volumes, and this may be considered a wholesale supply. Consequently, companies sell fuel with the least extra price added, like all other businesses. As for the supply of fuel to private companies at preferential rates, we have the same situation. Companies are corporate clients and they buy fuel in huge volumes and enjoy various discounts due to the volume of the purchased product. People who are loyal clients also use various cards and enjoy various discounts, like in all other fields,” Mtvralashvili said.

Fuel experts do not agree with these explanations. Beka Kemularia, the head of the Consumer Protection Center, explained that a price difference is bigger in state procurement. “First of all, I should note how consolidated tenders are held. In this case all government offices jointly notify the state procurement office what volume of fuel they need.

There is a special formula in tender for fuel price calculation. This signifies that fuel price is determined every month, at the beginning of each month and at the beginning of each year due to this formula, when the currency exchange and oil price are changeable. This means a company will not lose money, that’s why the currency exchange and price are changeable. Therefore, companies do not sell fuel to state clients for net losses. As for the current situation, this month the price of Premium petrol is 1.98 GEL, that is, a liter of Premium petrol for a government vehicles costs 1.98 GEL, while on the retail market the same fuel costs 35 Tetri more. This is a huge price difference,” Kemularia said.