The FINANCIAL — Car owners in Georgia aren’t insured against an abrupt price increase in fuel, as major oil importers say there are no price cells in Georgia which could eliminate such a sudden rise of oil price.
Liberal economic policy let them set prices which are largely dependent on crude oil prices therefore if the price of the latter goes up so has the price of imported oil.
“Although it is an open market I can’t say this could happen within our company realm. In Georgia we have a liberal economic policy. So market forces do regulate and set prices according to demand and supply. So if the crude oil prices go down, the prices will automatically adjust according to our cost structural change. If the prices go up tomorrow, unfortunately expectations are so desperate about a price increase, we’ll react accordingly as we fully depend on crude gasoline and oil prices on international commodities’ markets,” Soso Pkhakadze, CEO of Wissol, told The FINANCIAL.
“On the question of whether the price could be set at 3 GEL, I don’t expect that but we also can’t eliminate it as just two years ago the price per barrel was 150 USD but now is 175 so even though nobody expects it, it could change. Our expectations are based on economic data and different scenarios as well as market expectations,” said Pkhakadze.
Socar and Wissol agree that to predict the maximum price of petroleum is impossible.
“By only imposing taxes on imported oil governments generate a huge amount of money. In Turkey the Government does 2.5 times higher taxation than in Georgia (the latter 250 GEL per tonne of oil) because it is the biggest industry in Turkey. Therefore the Government generates quite good revenues in Turkey,” said Phakadze.
As Mr. Revaz Khukhishvili, head of the commercial department at Socar, told The FINANCIAL, the price of petroleum products (diesel, petrol) depend on stock market indicator so-called plats’ dynamics, in addition to the fluctuations of exchange rates and thereafter the whole chain of logistics. The latter meaning buying of petrol, amount of buying, until it eventually goes to Georgian customers.
The final price of Socar petroleum products are defined according to the abovementioned factors which also entails the risks associated with predictions about petroleum prices worldwide.
As Revaz Khukhishvili from Socar says: making a prognosis about the maximum price of petroleum is impossible (whether it could reach 3 GEL or not) because it all depends on changes in the factors mentioned above. Though changes in parameters are classified with a one way supply-demand process which I think is aggravated with the stock market and other different large scale banks’ manipulations.
“For instance exploiting the spread of information about the war and natural calamities when it comes to OPEC member countries, either removing one of the large scale oil driller companies, on behalf of banking sector future stocks’ and hedge funds’ purchasing of large amounts of oil with relatively higher price contracts. These are all thereafter reflected on price fluctuations, whether it increases or decreases.
Although the countries which don’t have petroleum as a natural resource like Georgia have at least the opportunity to regulate the prices of oil based upon the changes in tax legislation,” said Khukhashvili.
“Not just for Georgian companies, but companies all over the world who distribute petroleum products, prices are set according to the original crude oil prices, on gasoline and diesel, they are actually quoted on a daily basis, with published quotations based on the transactions made during the same day. When somebody buys diesel, anywhere in the world, it doesn’t matter where you operate, there is a premium which is divided into two parts, it goes to the source and if you are buying product from an oil rig, the cost of insurance is applied, then transportation costs and insurance added. So the price of diesel is unilateral, it’s unique for all companies. As I said, you only have to adapt transportation and insurance,” said Pkhakadze, Wissol.
“All countries have their own legislation and custom duties. In Georgia we pay 250 GEL per tonne of gasoline, and 150 GEL for diesel. Then we pay VAT. And then we have a discharge cost at Poti Port, we pay Poti Port for those operations and then we pay transportation costs from Poti Port to Tbilisi terminals. Finally we pay transportation costs for our railways. This is pretty much how prices are set, and then all companies have their own mark up, which depends upon the quality of the product, the grade of the product, for instance euro 90 is different to 95 in terms of quality,” Pkhakadze told The FINANCIAL.
Wissol Petroleum claims there have been hundreds of cases of prices going up but due to the fact that they had large amounts of storage in terminals, the prices were maintained at the same level for a significant period of time.
“Incidentally no one asks why prices don’t go up when on the international markets this is a real trend. So this is a constant point of disagreement among customers and oil importers. Most price adjustments largely depend on logistics’ change. So if we bring for example, Api fuel from Italy, if the prices change and go down on international markets then it will take around 2 weeks for the adjustment of the decreased price to take effect. So if prices drop significantly then it will be seen sooner at certain companies which have less of a logistic chain while others have more of one. However when others dampen prices then we have to follow that trend otherwise we lose the trust of our customers. Being the leader of the market we are always in a situation where we have to accommodate our prices according to market demands. This is a single industry where so many multinational players operate in many countries, meaning the competition is quite high therefore the market forces themselves regulate the prices,” said Pkhakadze.
Currently prices of petroleum at Wissol start from 1.85 Euro Regular, and 2.00 GEL Api Super.
Paying with plastic cards still isn’t popular at Wissol, as Pkhakadze says, compared to Turkey where 90% of sales come from plastic cards, whereas this figure is negligible in Georgia in spite of the first cards introduced in 2001.
As Pkhakadze told The FINANCIAL, Wissol’s annual revenue is over 300 million GEL and this year they are investing 15-20 million USD more.