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Petroleum products: the market changes.

Petroleum products: the market changes.

InfoMarket agency comments:

Disagreement between the regulator and operators especially attracted attention when it comes to the oil market. This time the rising prices of gasoline and diesel fuel were justified by the operators of devaluation of lei - and it is logically stipulated. It can be reminded that the price increase was registered in the second half of September, the cost of petroleum products at the petrol stations increased by 20-30 bani, or from 1.1% to 1.6%.

On the one hand ANRE, which according to the regulations was informed three days before the price increase, has taken note of this; and was already aware about the upcoming increase. As a rule three days are given to ANRE to have time to analyze received from the operators of the query about the price change and to respond appropriately. In this case, for some reason, the response of the agency was announced after the price increase.

ANRE references figures published by the specialized world news PLATT'S, quotes which talk about the decrease in the period June-September of this year about the cost of gasoline by 10% - up to 918 USD per ton; and diesel fuel - by 6.4% up to 859 USD per ton. If the main reason for this increase is the devaluation of leu this figure from June to September amounted to 4.5%, and since the beginning of June the rate of leu vs. dollar remained at $ 13,83; and in the middle of September already $14.4.

So the price of gasoline in recent times has grown in early March by 70 bani – from 17,75 to 18,85 lei per liter. The rate was 13,66 lei per US dollar - that is, from March to September, its’ devaluation is estimated at 6.6 percent. In monetary terms, a liter of gasoline at the panel of the gas station in March cost 1.38 USD, in September- 1.31 USD, respectively.

As for diesel fuel, on 18 July prices were reduced by 50 bani – from 17,65 to 17.35 lei per liter.

Accounting calculations at the official rate, when currency importers of oil products purchase it at the commercial exchange rate at the banks, margin is significantly more when the dynamics of strengthening lei or its weakening which is observed at the present time.

The main argument of importers is that the rates are not static, so it is impossible to make calculations in respect to PLATTs quotations in every case.

It is not a secret that every government - especially in the election year does everything possible to keep the price increase and not only for the petroleum products to obtain the political dividends.

According to the importers, this year they kept the price and today its’ profitability declines by 30-40% compared with the previous year. As a consequence the current price increase is calculated for at least about one and a half percent. Despite the fact that, for example, at the official exchange rate on September 25 amounting to 14,56 lei per dollar, commercial banks sell it at 14,62 - and sale of this currency it is not necessary to speak about the trend growth rate or the necessity for urgent and large-scale interventions by the national Bank.

Between the statements of the two parties, the truth is somewhere here and shall be at least found.

Then, there goes on an old-age debate about the fact that pricing at the oil market should be changed. In situation where operators have in three days to inform the regulator's intention to change the sales price, it is impossible to respond to the world quotes. Importers cite the example of the Austrian market, where the price of panels can be changed 2-3 times a day; or even less as at the Romanian market with weekly revisions of the existing tariffs.

According to the importers, they can not flexibly respond to the global prices and the rate of leu vs. dollar. Maybe that's why there are circulating rumors that prices are set incorrectly. On the other hand, if operators had the opportunity at least daily to respond to quotations of fuel and currencies, perhaps this would benefit the consumers.

Against this background, today there are serious debates on the introduction of new methodologies and application of prices for petroleum products. That is the establishment of a new game on the market.

As the Director of ANRE Sergei Ciobanu said: "The current methodology was developed in 2006 it is outdated and should be changed. I wish all the companies to participate in the development of this document. It is important that the oil market prior to ANRE will be developed".

The authors of the project methodology has essentially divided the wholesale and retail, providing the maximum profit. So, for the costs associated with the activities of the import and wholesale of petroleum products (including fees for customs clearance and environmental fees), the rate of profit it is proposed to limit up to $55 - per tons of gasoline and diesel fuel and up to $120 - per 1 ton of liquefied gas).

For retail sale of petroleum products this limitation is proposed in the amount of $150 per ton. In addition, the calculation will be made in liters and tons. Retail prices for petroleum products, in accordance with the project methodology will be recalculated every 14 days, and the new rates are proposed to be set up weekly, in the night from Tuesday. It will give the market dynamics, as it relies on saving temporary stability that is necessary for the consumer.

Importers are in despair! First of all, many say that the current methodology is not as bad as it is noted. For example, none of the plants do not sell the fuel at the PLATT's price and is only a guideline for shopping on the shores of the Mediterranean Sea. The award of the plant, where fuel is purchased, the price of PLATT's is increasing from 15 to 30 dollars to the ton.

The opinion of one of the market operators: "If a new methodology is adopted in the current version, this will lead to the failure of importers of petroleum products to sell fuel at the wholesale prices. The segment will become unprofitable and the situation will lead to shortages of the petroleum products. This is not a blackmail, but reality. Eventually the farmers will be forced to buy fuel at the retail prices".

As it was noted above, a new wave of debates at the oil market always rises before the election as the government doesn't want to upset their voters by raising prices, as the petroleum products is the starting point to form prices for goods and services.

But at this time Moldova has managed to get rid of the Soviet economy inheritance- fuel coupons.

This atavism was not even observed in the legal successor of the USSR - the Russian Federation for many years. The penultimate in the area of the former Soviet Union such coupons were cancelled in the neighboring Ukraine from January 1, 2010.

A serious attempt to cancel the coupons was undertaken by the Ministry of Finance in early 2010. The Finance Ministry then calculated that it caused damage to the budget VAT worth 270 million lei. However, the authors of the initiative faced strong resistance from the Ministry of economy. Someone say that the cause of the differences went far beyond the market relations... But in the end, the initiative failed.

Generally, coupons are a money substitute. By the end of 2013 the country imported 640 thousand tons of fuel, two-thirds of which were sold using coupons. In terms of money it is 7-8 billion lei. In fact, coupons are a liquid currency, which can be used for payment for some officials for so-called "small services". Many petrol stations could sell coupons at a reduced price, you could fill your car with coupons without the superiors ' knowledge. That is de facto; a certain amount of money supply in the country is expressed in virtually uncontrolled "currency".

In general, it is not clear why the government waited for five years to finally cancel the coupons and turn to the European practice. May be because over the years the owners of some of the major networks has changed?

So, in June, the government has cancelled coupons practice. From September 1 their sale is banned and those that have been sold can be used till the end of the year.

According to the importers discounts previously provided to the coupons buyers will now be reflected in the price at the display of the gas station. Now every company, depending on the volume of fuel consumed by the end of the month will tend to encourage their faithful buyers.

For example, those who will fill up their cars with one ton of gasoline per month will be credited to card bonus of 30 liters - that is, 3% discount. This can be done with the minus invoice accounting.

The data on details and mechanisms of loyalty programs shall be provided by your operator.

Thus, this is the idea of the Ministry of Finance, which seeks to ensure the taxation to be carried out at the time of delivery of goods, and all bonuses and discounts of the fuel companies to be provided openly, including the way of taxation. In other words, the talk is about monetization of the oil market.

As the competition will affect panels and prices for them will change much more frequently than now, it will depend on the purchase of one or another party of fuel. So the client will look not only at the price, but also at the quality of service.

Cancellation of coupons is the first step to the positive change at the oil market. The new methodology should be the next step. There is a fear that we can face cartel collusion of the major players and there is no open market, which really would determine supply and demand.

For example, in Russia, all enterprises are obliged to buy at least 15% of oil products at the commodity exchange. In this case, the trades are performed within healthy competition. In Moldova operators establish their price. If all importers met with wholesale and retail buyers at the exchange, then no one would be able to speak about any collusion and the price would be determined at the market in the result of the supply and demand.

By the way, during the public procurement, which took place at the Universal commodity exchange of Moldova in 2008-2010, were registered fuel sales which resulted in a huge budget savings. Those trades have shown real healthy competition between the sellers. Moreover, the auction prices declared at the auction have become a benchmark for the entire market.

It is desired that the state can create conditions when the oil prices will be fair. As Moldova depends on 99% on the imports of these goods (oil is still processed in the diesel fuel in the South of Moldova).

May be after the abolition of coupons, it will be possible to create such conditions under which no one would have reason to blame the industry for price-fixing; and the consumer will really feel the breath of the market- not only the increase in prices, but their decrease when quotations PLATT's will go down and lei will strengthen.