Burning heads: fuel market participants opposed government regulation of prices
Manufacturers and sellers of fuel opposed government regulation of fuel prices. The State Duma intends to consider such a bill as early as December — it gives the Cabinet the right to impose restrictions for a period of no more than 90 days, by analogy with socially significant products. Business representatives believe that the new rule will lead to shortages, as well as corruption risks, so they are ready to send their position to the Ministry of Energy. According to experts, there is logic in the bill, but the authors of the initiative do not work with the market, do not know the situation inside it, so they cannot objectively assess it.
Why do the participants of the fuel market not support its state regulation
Representatives of the fuel business did not support the bill, which should give the government the right to set maximum allowable retail prices for fuel for a period of no more than 90 days in order to stabilize the market situation.
State regulation of fuel prices operated from 1920 to 1991. By the time of the collapse of the USSR, the average cost of Ai-92 gasoline in Russia was 40 kopecks per liter. At the same time, since 1990, the real price of its production has exceeded the state-regulated cost by half, which led to a shortage and a black market. In December 1991, the President of the RSFSR, Boris Yeltsin, signed a decree on price liberalization, but gasoline became one of the socially important goods for which prices continued to be set by the state. But already in January 1992, a government decree was signed allowing refineries to supply 10% of their products at free prices. The transition to market prices was finally announced in June 1995.
The initiative was submitted to the State Duma on July 14 by deputies and senators from the Communist Party of the Russian Federation. As Izvestia found out, the relevant State Duma Committee on Industry and Trade included the document in the approximate program of the autumn session of parliament. According to the committee's decision, the bill may be considered in the first reading in December this year. The document also notes that the initiative complies with the requirements of the Constitution of the Russian Federation.
The Cabinet of Ministers, according to the law on the basics of regulating trade activities, already has the right to regulate the cost of socially significant goods if their price increases by 10% or more within 60 days. By analogy, the authors propose to regulate the cost of fuel.
— The market is primarily an opportunity for businesses to sell fuel based on demand at a price that buyers are willing to pay. It in itself implies the absence of any regulation. Therefore, government intervention is clearly inappropriate here, otherwise it will no longer be a market, but a planned sale of fuel at prices set by someone. We have a very negative attitude towards this initiative," Marat Murtazin, president of the St. Petersburg Oil Club Union (unites fuel market enterprises), told Izvestia.
He also stressed that any commercial activity must be profitable. Artificial price restraint, in his opinion, can lead to fuel shortages, higher prices in the future and the emergence of corruption risks. The expert said that the association is ready to submit its feedback to the Ministry of Energy.
Evgeny Arkusha, President of the Russian Fuel Union, told Izvestia that the industry would not support this initiative, as any government regulation of prices leads to shortages.
"This is not the first attempt at administrative interference in market mechanisms, the result of which is already leading to negative consequences for business," he told Izvestia.
A source in the fuel market said that neither the large oil business nor the owners of private gas stations would support the bill and would prepare negative reviews for the document.
— In a crisis situation, these regulations will create an imbalance in the fuel market and further exacerbate the fuel shortage situation. If private gas stations cannot make a profit and sell fuel at a commercial price, they will go idle, and their market share is 60%," he explained to Izvestia.
The Union of Oil and Gas Industrialists (which unites the largest representatives of the industry) is not yet familiar with the legislative initiative, but they are ready to prepare their official response to it, Anatoly Zamri, first deputy chairman of the Council of the union, told Izvestia. According to him, the state regulation of the fuel market exists in a well-thought-out form today.
— There are excise tax, tax benefits and business preferences mechanisms that are periodically changed by the government in response to emerging challenges. We remember the temporary export bans imposed on certain types of fuel related to the harvesting campaign. Price dampers have also been used repeatedly," the business representative recalled.
The government told Izvestia that the bill had not yet been submitted for review. The Ministry of Energy and the Federal Antimonopoly Service did not promptly respond to the request. The editorial board also sent inquiries to the largest oil companies with a request to give their assessment of the proposed measures.
Pros and cons of state regulation of the fuel market
The development of the bill is conditioned by the situation on the Russian fuel market and the shortage of gasoline and diesel, one of its authors, Senator Airat Gibaddinov, explained to Izvestia.
— Virtually all sectors of the economy depend on the cost of fuel. If it becomes more expensive, then transportation costs increase, the cost of production increases, and after that the prices of food, basic necessities and services. It is quite logical if the state intervenes in this industry, especially since the government already has the authority to set the marginal cost for certain categories of goods," the parliamentarian noted.
According to him, the bill does not imply permanent interference in the market: it is specifically about time restrictions — for a period of no more than 90 days in case of sharp price spikes.
Anastasia Bunina, director of the Gainful Fuel company and market expert, in turn, noted that the very idea of the bill deserves attention, but the price fixing mechanism should operate for a longer period. This is due to the specifics of the market: the delivery and shipment time of fuel is at least 30 days, so short-term restrictions will not allow industry participants to effectively adapt to new conditions.
In her opinion, the adoption of the bill by itself will not necessarily lead to higher prices. However, in this case, the document should provide for a minimum level of profitability of gas stations. Otherwise, the expert believes, the number of non—operational gas stations in Russia may increase significantly, by analogy with European countries, where this format has already become widespread.
— I would not say that the appearance of state regulation of fuel prices is a bad thing, but this issue needs to be worked out. However, I have not seen the Communist Party of the Russian Federation actively working with participants in the fuel market and the fuel and energy complex as a whole, and political fantasies and the realities of life are completely different things," Dmitry Gusev, deputy chairman of the Supervisory Board of the Reliable Partner Association, told Izvestia.
According to him, in the current conditions, state regulation of prices may be a justified mechanism. Given the populist rhetoric of the Communist Party of the Russian Federation and, in his opinion, the lack of elaboration of the initiative with market participants, this bill looks more like an election hype. That is why, the expert believes, the probability of the document's adoption is extremely low: in his opinion, it is unlikely to pass even the first reading.
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