fbpx

Business does not support the introduction of state regulation of fuel prices

14/ 05/ 2021
  Under CMU Resolution № 450 of March 29, 2021, temporary state regulation of retail prices for gasoline A-92, A-95, and diesel fuel sold at gas stations was introduced with the declaration of the price increase. This Resolution came into force on 12.05.2021. Moreover, a draft Resolution of the Cabinet of Ministers of Ukraine on temporary state regulation of prices for A-92, A-95 gasoline, and diesel fuel by setting a limited trade margin has appeared on the website of the Mineconomy. According to the European Business Association, these initiatives are unacceptable in a civilized European country and will contribute to the growth of shadow trade in the market. First, they contradict the Association Agreement between Ukraine and the EU, as the decision on state regulation of prices completely eliminates the role of the market as the main regulator of market relations and will promote state intervention in economic business processes. Secondly, currently, the market price of fuel includes not only the average cost of petroleum products according to the international news agency and the marginal level of trade margin of 5-7 UAH (as stated in the project) but also transportation costs in Ukraine and abroad, costs for transshipment, storage, certification, exchange rate volatility, quality control, etc. Therefore, manual price regulation can destroy the pricing mechanisms used by the transparent business for years and create a crisis with the unpredictable supply of petroleum products to consumers, the shutdown of transparent gas stations, and so on. Third, today, there is a large number of gas stations and this allows consumers to have a choice of products and sellers, depending on price and other factors. The mechanism of limiting a trade margin puts the transparent business in a single price corridor, and the obligation to declare price changes in advance will distort price competition, which obviously significantly violates the principles of transparent competition and contradicts the Law on Protection of Economic Competition. Fourth, in case of the establishment of state regulation of prices, which is lower than economically justified ones, the executive authorities and local governments must reimburse businesses for such a difference in prices under the Law on Prices and Pricing. Otherwise, the establishment of such regulation is not allowed. Fifth, price regulation will lead to losses for business, and, consequently, will affect tax revenues to the state budget which means that all parties will lose. The only one who will win is the shadow business with questionable fuel quality, against which the country is so actively trying to fight. A side effect of this situation may also be an increase in the costs of corporate customers of gas stations, as market players will not be able to provide them with discounts based on the amount of fuel consumed. Therefore, the European Business Association appeals to the Cabinet of Ministers to repeal the adopted Resolution and not to allow the introduction of a limited trade margin on fuel, so that the industry continues to function under equal rules of the game. Thus, the EBA warned the Government in advance about the negative consequences of such regulation. Besides, a market economy cannot be based on outdated price regulation mechanisms and the rhetorical question is what signal this can give to international investors regarding the predictability of the countrys regulatory policy.   Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

Under CMU Resolution № 450 of March 29, 2021, temporary state regulation of retail prices for gasoline A-92, A-95, and diesel fuel sold at gas stations was introduced with the declaration of the price increase. This Resolution came into force on 12.05.2021. Moreover, a draft Resolution of the Cabinet of Ministers of Ukraine on temporary state regulation of prices for A-92, A-95 gasoline, and diesel fuel by setting a limited trade margin has appeared on the website of the Mineconomy.

According to the European Business Association, these initiatives are unacceptable in a civilized European country and will contribute to the growth of shadow trade in the market.

First, they contradict the Association Agreement between Ukraine and the EU, as the decision on state regulation of prices completely eliminates the role of the market as the main regulator of market relations and will promote state intervention in economic business processes.

Secondly, currently, the market price of fuel includes not only the average cost of petroleum products according to the international news agency and the marginal level of trade margin of 5-7 UAH (as stated in the project) but also transportation costs in Ukraine and abroad, costs for transshipment, storage, certification, exchange rate volatility, quality control, etc. Therefore, “manual” price regulation can destroy the pricing mechanisms used by the transparent business for years and create a crisis with the unpredictable supply of petroleum products to consumers, the shutdown of transparent gas stations, and so on.

Third, today, there is a large number of gas stations and this allows consumers to have a choice of products and sellers, depending on price and other factors. The mechanism of limiting a trade margin puts the transparent business in a single “price corridor”, and the obligation to declare price changes in advance will distort price competition, which obviously significantly violates the principles of transparent competition and contradicts the Law on Protection of Economic Competition.

Fourth, in case of the establishment of state regulation of prices, which is lower than economically justified ones, the executive authorities and local governments must reimburse businesses for such a difference in prices under the Law on Prices and Pricing. Otherwise, the establishment of such regulation is not allowed.

Fifth, price regulation will lead to losses for business, and, consequently, will affect tax revenues to the state budget which means that all parties will lose. The only one who will win is the shadow business with questionable fuel quality, against which the country is so actively trying to fight.

A side effect of this situation may also be an increase in the costs of corporate customers of gas stations, as market players will not be able to provide them with discounts based on the amount of fuel consumed.

Therefore, the European Business Association appeals to the Cabinet of Ministers to repeal the adopted Resolution and not to allow the introduction of a limited trade margin on fuel, so that the industry continues to function under equal rules of the game. Thus, the EBA warned the Government in advance about the negative consequences of such regulation.

Besides, a market economy cannot be based on outdated price regulation mechanisms and the rhetorical question is what signal this can give to international investors regarding the predictability of the country’s regulatory policy.

 

Be the first to learn about the latest EBA news with our Telegram-channel EBAUkraine.

If you have found a spelling error, please, notify us by selecting that text and pressing Ctrl+Enter.

Start
in the Telegram bot
Read articles. Share in social networks
0 Shares

Spelling error report

The following text will be sent to our editors: