Higher fuel prices spark debate

RISING oil prices will not spare the Slovak fuel market and consumers will have to reach deeper into their pockets to pay for their petrol.

RISING oil prices will not spare the Slovak fuel market and consumers will have to reach deeper into their pockets to pay for their petrol.

Currently, fuel prices are around Sk37.35 (€0.97) per litre at Slovak gas stations but experts say that the cost of filling your car might soon cross the Sk40 (€1.04) per litre barrier.

"As a consumer I am hoping that fuel prices will not exceed this psychological barrier [Sk40], but as an expert, I do not have that optimism," Béla Kelemen, deputy director of marketing at Slovakia's major oil refinery, Slovnaft, told the press.

The price of gasoline has already climbed by 55 percent since January while diesel prices have increased by more than 40 percent.

The rise in fuel prices is part of a worldwide phenomenon. Slovakia's southern neighbour, Hungary, for example, also expects prices to climb.

Analysts point out that the newly-gained strength of the US dollar, which since May has firmed by 5 percent against the Slovak crown, is one of the factors pushing up fuel prices.

The limited capacities of refineries worldwide and increasing demand for fuel in China, India, and the US are also factors contributing to the increase.

Experts say that the prices, which are bringing record gains to the oil refineries, are not likely to drop in the next few years.

According to Slovnaft's Kelemen, one solution would be to build a new refinery. However, that might take more than five years.

"To build a new refinery takes five years, and it requires around €2 billion, which is approximately ten times the profit that Slovnaft made last year," Kelemen explained.

However, Slovnaft's pricing policy has been a cause of concern to the Finance Ministry and Slovak business circles in the past.

Currently, a hefty fine levied against Slovnaft for the alleged abuse of its dominant position on the Slovak market, and for violating pricing discipline, is being scrutinized by the Finance Ministry.

In another development, Slovnaft announced it would no longer publish the retail prices of its products. The company said that at 270 gas stations there are 30 different price lists, as sellers are leading price wars at regional levels.

"As a result of toughening competition, local prices, with considerable variation, are gaining importance, while the number of prices has been rising continuously. Neither Slovnaft nor other fuel retail networks are applying unified prices and thus publishing a unified price has no informational value as there are different prices at different petrol stations," a spokeswoman for Slovnaft, Kristína Félová, told The Slovak Spectator.

According to Félová, not publishing its price list is a positive move intended to encourage competition on the fuel market.

"In the end it should benefit the consumer," Félová added, referring to a statement by the Antitrust Office claiming that when Slovnaft publishes its price lists, other players simply duplicate these prices.

However, Klub 500, a non-governmental association that represents firms with more than 500 employees, is far from enthusiastic about Slovnaft's decision. The association claims that the decision not to publish harms transparency.

The association also accuses Slovnaft of hypocrisy in its claim that not making the price list public contributes to increased competition.

"If Slovnaft was not a firm with a dominant position on the fuel market, it could be true. However, Slovnaft is a monopoly supplier of fuel and thus we perceive its decision as an effort to make its pricing and inappropriate gains less transparent. As Slovnaft is selling fuel not only to the end-consumers but also to its competition in the retail chains, it does have a direct impact on price creation on the market," the Executive Director of Klub 500, Tibor Gregor, told The Slovak Spectator.

"As a result of the refusal to publish the referential price list, the consumers might lose their orientation, and they might buy the more expensive fuel. The refinery is trying to defend itself from the criticism that will follow the price rises," said Klub 500's Gregor.

However, Slovnaft argues that publishing the prices is not international practice and that "apart from companies belonging to the MOL group, companies do not publish changes to fuel prices."

"When you plan to go shopping at a hypermarket, no one informs you in advance before visiting the hypermarket whether the price of the product you intend to purchase has been changing over the past couple days," Félová said.

Félová also stressed that, "not publishing the price does not mean changes to the price of the fuel."

According to her, the price lists displayed at each petrol station at a visible spot inform consumers of the exact prices and each consumer can check the exact prices directly at the petrol stations.

Gregor of Klub 500 says "that publishing the prices is not against international practice.

"In Slovakia there is no hypermarket with a dominant position on the market."

The employers association expects the Finance Ministry to re-evaluate the tax burden and come up with a model, which might force the sellers to reflect the reduced tax burden in the final prices of fuel.

"It could even define the maximum prices or maximum profit [for Slovnaft]," Gregor said.

A Finance Ministry inspection initiated by the Antitrust Office in November 2004 concluded that from 2002 to 2003, Slovnaft illegally inflated its prices, resulting in unjustifiably high profits.

According to the ministry, Slovnaft's unjustified prices resulted in additional profits of Sk252 million (€6.5 million) in 2002, Sk276 million (€7.1 million) in 2003, and Sk824 million (€21.3 million) in the first nine months of 2004.

In late January, Mikloš said the ministry could use price regulation as a tool to discipline Slovnaft for its pricing policies, putting the cost of fuel directly into state hands.

However after a Slovnaft appeal, the Finance Ministry's controlling body must give more grounds to its claim that the profit of the company for 2004 was unusually high.

Slovnaft claims that the ministry's decision disregarded market trade principles.

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