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Whether Oil Companies Raised Fuel Prices before Upturn in Excise Tax

Starting January 1, 2017 excise tax has increased on automobiles and fuel.

«Excise tax will increase on imported vehicles and I would like to note that excise tax will be several times lower compared to rates in neighboring countries. Excise tax will  also increase on oil products», Prime Minister Giorgi Kvirikashvili said.

According to Minister of Finance Dimitri Kumsishvili, excise tax of a ton of petrol increased to 50 GEL from 250 GEL. Excise tax on one ton of diesel rose to 400 GEL from 150 GEL and excise tax on 1000 cubic meters of natural gas grew to 200 GEL from 80 GEL.

The Caucasus Business Week (CBW) has explored current situation on the market and effects of excise tax growth.

Companies have misused excise tax growth fact and raised fuel prices before excise taxes went up, Paata Bairakhtari, analyst for Association of Young Financiers and Businessmen (AYFB) noted.

According to analysts’ estimations, since December 2016 fuel prices have increased by 18.26%, while oil products excise rate increased by 15% starting January 1. As a result, price of one liter of Premium fuel hit even 2.19 GEL.

«Currently price of one liter of Premium fuel is about 2.19 GEL and increased excise tax is named as a key factor. However, if we analyze main operating factors, it is evident that companies have increased prices much more as compared to real effect form excise tax and other fundamental factors.

Starting January 1, 2017 price of one liter of fuel has increased by 15%, while since December 16 fuel prices have increased by 18.26%. We should also remember that over the past month global oil prices declined by about 10% and for the past 2 weeks GEL exchange rate strengthened by about 8%», Bairakhtari said.

Several fundamental factors have preconditioned upturn in prices over the past 2 months, namely: rise in global oil prices, national currency devaluation and rise in oil products excise tax.

«Over the past 2 months, on Georgian market fuel prices were corrected 5 times and, in whole, fuel prices rose by more than 18%. On Georgian market several fundamental factors were named for growth in prices, such as upturn in oil prices on global exchanges, national currency depreciation and excise tax growth on oil products.

In December 2016 oil prices slightly increased on global markets and the price of a barrel made up 58 USD, as a result of December 10 decision by OPEC, under which OPEC member countries reached a new agreement on oil extraction reduction. By that period Georgian oil importer companies raised price of a liter of petrol by 5 Tetri on average (GEL exchange rate was 2.58 in that period).

After that, national currency depreciated and companies raised fuel prices by additional 5 Tetri», Bairakhtari said.

According to analysts, oil products importer companies carried out one more preventive step at the end of December 2016, when they increased fuel prices by 5 Tetri, while all key parameters affecting fuel prices remained unchanged.

The companies have used expected growth in excise tax for further growth in profits and included excise  tax margin in fuel price, Paata Bairakhtari noted.

«Today oil companies operate under unjust tariffs and the state cannot take counter measures. As a result, our consumers turn out in complicated situation», Bairakhtari said.

In similar situations it is important that oil companies feel social responsibility before society and do not misuse all situations.

No oil importer company makes comments on whether oil companies have put higher excise tax in price. It is unclear on what AYFB calculations are based and therefore, they cannot make comments on similar statements.

Vano Mtvralashvili, head of Union of Oil Products Importers finds the mentioned accusations ungrounded. It is ungrounded statements as if oil companies have included increased excise tax into fuel price, Vano Mtvralashvili said.

Current tariffs reflect international oil prices, GEL exchange rate against USD and amendments to tax legislation, Mtvralashvili said. Current tariffs represent a combination of all the mentioned components, he added.

Current market prices are very competitive, Mtvralashvili said.

«Operators have set different tariffs, including branded operators. Prices vary in non-branded segment too.  In whole, various companies operate under various tariffs and this proves there is sharp competition on the market», Mtvralashvili noted.

According to forecasts by Mtvralashvili, in the near future fuel prices are not expected to rise, but there are two components that are not stable over the last period. The question is of international oil prices and GEL exchange rate against USD. If these two components are stable, prices will not grow, but it is difficult to say what happens tomorrow and the day after tomorrow, he added.