The FINANCIAL — Small businessman Zviad Pheradze has been suffering because of the high fuel prices for more than a year now. He owns three small shops all in different districts of Tbilisi. Every morning Pheradze has to distribute vegetables and fruits to the three shops with his small cab.
“Every morning I buy products at different markets and then distribute them to my shops,” Pheradze says. “I have to move across the whole of Tbilisi and this requires a lot of petrol. The high prices of fuel directly affect the prices at my shops. I try to have low prices as the competition among mini-markets is quite high. Frankly speaking, my shops aren’t the most popular ones in their respective territories and I am losing more customers due to the increased prices. It might only be 5 Tetri per item, but it has already significantly influenced sales. I have tried not to distribute products daily, but this then mean my shop lacks some products including fresh vegetables and fruit which have to be brought in daily. This has also resulted in a decreased number of customers.”
Pheradze is married and has two children. These three shops are the only financial source of the family, he says. Pheradze can hardly afford everything they need. And they often have hard times, he says.
“I wanted to convert my car to autogas, but safe and modern equipment is quite expensive as well,” he explained. “If I could afford it, I would gain this money back in a year. But I don’t have money for it and I’m afraid of taking out a loan from a bank.”
“Sometimes I want to treat my wife or take her out to a restaurant, but then I remember that I have to avoid any extra expenses. We have two small children to take care of.”
Pheradze isn’t the exception to be suffering from the high prices of fuel. Badri Balisashvili has a small car rental company. He has several cars but all of them of high class, and they too require a lot of petrol.
“I’m losing more and more clients as the prices for petrol are increasing,” Balisashvili said. “People tend to rent economy class cars. I am already thinking of changing my cars, but that will require a lot of money as well.”
Gasoline prices in Georgia are very close to European market prices, while the monthly income of the majority of the population is 70% less than the average salary in the EU.
Current fuel prices per litre are as follows: regular – 2.05 GEL, euro-regular – 2.05-2.10 GEL, premium – 2.18-2.30 GEL, super – 2.25-2.30 GEL, euro-diesel – 2.30 GEL, diesel L62 – 2.10-2.15 GEL.
Fuel prices have increased by 0.20-0.25 GEL since the beginning of 2011. In January 2011 prices were as follows: regular – 1.90 GEL, euro-regular – 1.92-1.95 GEL, premium – 2.00-2.05 GEL, super – 2.05-2.10 GEL, euro-diesel – 2.10-2.15 GEL, diesel L62 – 1.95-2.00 GEL.
Fuel prices have changed fifteen times in Georgia during 2011 with ten increases and five decreases. The highest price was detected in summer, especially in June.
These prices are high for the average Georgian, but they are reasonable, claim specialists.
“Georgian fuel importers sign contracts with their partners according to Platts prices,” Vano Mtvralashvili, Chairman of The Union of Oil Products Enterprisers, Importers and Customers, told The FINANCIAL. “Platts prices have significantly increased compared to at the beginning of 2011. Whereas average petrol price in January 2011 was 850 USD per ton, by November this has reached up to 950 USD. For diesel the price rise is higher. Whereas it used to be about 770 USD per ton in January, now it’s 950 USD.”
Platts is the leading global provider of energy and metals information, and the world’s foremost source of price assessments in the physical energy markets.
“These are the actual costs of fuel,” Mtvralashvili explained. “It’s unfair to calculate local fuel prices only according to Platts prices though. Cost of excise, custom and VAT is added to these numbers, which I can say is quite high in Georgia. For example VAT is 18 percent of the cost, petrol import needs excise of 250 GEL, and diesel – 150 GEL.”
Prices may be in accordance with international ones, but fuel remains barely affordable for the average Georgian. This has somehow resulted in the whole amount of fuel import.
620,000 tons of petrol and diesel were imported in the first ten months of 2011, according to the data of the Union of Oil Products Enterprisers, Importers and Customers. This is 22,000 tons less in comparison to the same period of 2010 as it was 642,000 tons in the first ten months of 2010.
“There are two reasons for the reduced petrol and diesel import,” Mtvralashvili stated. “More and more people are trying to cut expenses including fuel expenses as much as possible and on the other hand more and more vehicle owners are converting them to autogas.”
“Autogas has several advantages. First of all it needs much less fuel and consumers can save money quite well. As well as that it has less emissions and causes less harm to the atmosphere. Modern autogas equipment is totally safe and therefore they have been becoming more popular in recent times. There are plenty of autogas filling stations in Tbilisi and eastern Georgia. The western regions of the country somehow lack them. But the process is developing.”
Taxi driver Elizbar Abramishvili is one person who has converted his car to autogas.
“Converting costs about 2,000 GEL which is quite high for me,” Abramishvili said. “I was saving money for a long time to be able to afford it. But now I feel relief. I have significantly reduced my expenses and I can afford more for my family.”
In spite of reducing import, fuel consumption remains quite high in Georgia. Regular holds the largest share of the whole petrol import of 2011, as in previous years. 73% of total petrol import is made up by regular, 24% by premium and 3% super. As for diesel, L 62 makes up 70% of the import and euro diesel holds 30%.
“Prices have a significant influence on such a share of fuel types,” the Chairman continued. Regular is sold more as it costs less. A price difference of 15-20 Tetri holds high importance for Georgian consumers. On the other hand, the vast majority of Georgian vehicles are old and regular is recommended for them. The number of new jeep or sedan models, which need super, are really few here.”
The reasons for the high use of regular or decreased fuel import are different. But the key point remains high prices. Almost all car owners worry about this. Whether prices are reasonable and corresponding to international ones or not, they are high for Georgian consumers. And this is negatively affecting the activities of small entrepreneurs.
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