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Tuesday 20.03.2018 | Name days: Made, Irbe

Expert: fuel price formulation clearer than of food

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU, Zigurds Vaikulis

Citadele Asset Management market analysis department head Zigurds Vaikulis

Fuel price formation mechanism is not fully clear even to people with some experience in such matters, but still, compared to food prices, it is more transparent, Citadele Asset Management market analysis department head Zigurds Vaikulis told the business portal

In his view, so far the fuel market has been «shaken» a lot and, although it still has many obscure things, compared to other product and service markets, it is one of the most transparent. Milk, bread or meat price formation in general is mystic, said Vaikulis, indicating this is evidenced by the sharp food price gap among the three Baltic States.

As regards the Competition Council’s initiated case on alleged violations of the Competition Law in SIA Latvija Statoil, SIA Neste Latvija and SIA Lukoil Baltija R operations, Vaikulis pointed out it will be difficult to detect a pricing infringement or possible agreement between fuel dealers, as there are no dramatic or striking events demonstrating a fixed pricing policy.

However, Vaikulis reminded he is not an expert on cartel and competition matters, pointing out two factors may suggest a cartel between fuel traders.

Firstly, this concerns mark-ups. Vaikulis referred to the European Commission (EC) data, explaining that, compared to 2006 –2007, they have grown significantly in Latvia. Before fuel was sold with one mark-up, but now with another one. Some companies may have problems with money, forcing to increase the mark-up, but it makes people suspicious if all of them do it, the analyst asserted.

Secondly, among the European Union (EU) member states Latvia has moved up in the list of fuel costs, excluding taxes. In 2006 and 2007, Latvia had the lowest prices in this list; however, now it places in the middle. Consequently, fuel prices in Latvia have risen in line with Europe’s prices.

If in the previous years, fuel was more expensive in Lithuania, but cheaper in Estonia, now the prices have levelled out in Latvia and Lithuania, while the price gap with Estonia has expanded even more. In Latvia, the fuel price, after deducing taxes, is five santims higher than in Estonia. It is a big difference. The barrel is one – Mazeikiu Nafta – and the market size is very similar, as well as the players, so why is the fuel price higher in Latvia even without higher taxes, Vaikulis asked rhetorically.

When asked whether there are obvious reasons for expensive fuel, excluding taxes, in Latvia, compared to Estonia, Vaikulis admitted he was not aware of any. However, he conceded this could be due to Latvia suffering more in the crisis.

He believes competition in the Latvian fuel market is sufficient. However, information about companies’ market share is not publicly available, but he has heard Statoil Latvija holds about 40% of the market in Riga.

At the same time, he also conceded fuel prices are few santims higher in Latvia, because traders try to attract customers to their chain with the help of loyalty cards. In some chains, it is possible to purchase fuel three santims cheaper per litre with discount cards. So, price increase could be a deliberate step of traders.

From another perspective, there are poor signals about alleged violations, but not conclusive evidence. When analyzing price ratios and market indexes, it will be impossible to draw firm conclusions on whether there is an agreement between fuel retailers. Most likely, only similar methods to the Corruption Prevention and Combating Bureau’s ones will attain this, Vaikulis summed up.

As reported, the Competition Council initiated proceedings on alleged violations of the Competition Law in SIA Latvija Statoil, SIA Neste Latvija and SIA Lukoil Baltija R activities, the Council’s representative Inita Kabanova confirmed previously.


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