Belarusian deja vu

The news about Russian oil companies having cut supplies of hydrocarbons to Belarus (local state oil refineries have reserves of raw material only for a month) is not directly connected to Ukraine. At the same time, it shows that the government of the colossus next door, with feet of oil and gas, protects its interests while ignoring those of its contractors, with whom it was previously in friendly relations. Moreover, we experienced this in early 2009 ourselves, when all gas valves to Ukraine were shut.

The current situation in Belarus is as follows: Russian oil is stuck in the pipes because the parties cannot agree on new prices. Suppliers tried to increase oil prices by 45 dollars per ton in response to the Minsk’s increase of transit duties since January 1 by 12.5 percent. Minsk opposes this price hike, reminding that it already negotiated the tariff for 2011 with Russia. Indeed, at the end of 2010 the parties agreed that Russia (the biggest suppliers — Lukoil, Surgutneftegas and Rosneft) would export oil to Belarus without duties. Instead, Minsk promised to give to the Russian budget all duties from the export of oil products made from Russian raw material. Russia calculated that they would lose 5.3 billion dollars per year from such an exchange. Thus the conflict between the two members of the Union State [of Russia and Belarus – Ed.] became entrenched.

But Ukraine has no reason to gloat, as its oil affairs are not perfect either, though supplies have been diversified long ago. Recently the Antimonopoly Committee initiated a criminal case regarding the abrupt prices increase for A-95 and A-92 gasoline by the main operators of the market.

“According to preliminary information, such enterprises as Okko-Naftoproduct, Kontynent Nafto Trade (brand WOG), Alliance Holding (Shell), Lukoil-Ukraine and TNK-BP Commerce were leaders in increasing gasoline prices,” the message of the Antimonopoly Committee states. The Committee promises that in the course of the investigation special attention will be paid to the formation of the entire chain of expenses which influence the cost of the fuel, taking into account the prices for the remnants of oil products. It will also check the impact of the increase of the excise tax (by 37.9 percent, to 182 euros per ton), which was introduced by the new Tax Code, on the formation of the fuel cost.

It’s strange that the Antimonopoly Committee only just started thinking about the impact of the excise tax on the price of oil products. Where were they when the Code was in the process of “national” discussions, in particular, at the so-called Tax Maidan? Meanwhile, analysts suppose that increasing the excise tax and removing strict restrictions regarding the price policy of gas stations will lead to gasoline chaos in Ukraine. Some predict that by the end of the year gasoline prices will go up by 10 to 15 percent.

The government is willing to risk this. Interestingly, there are two opposing groups of lobbyists arguing for the introduction of duties on imported oil products. The Ministry of Finance and the Ministry of Economy are confident that such duties will have a ne­gative influence on the country’s market, that they will reduce fuel imports, and decrease tax revenues. Specifically, the Ministry of Finance warns of a new hole in the budget (of 13 billion hryvnias). And the Ministry of Economy (one should admit its adherence to principle and even boldness!) states the reason for the increase of import of oil products in 2010 is that they were imported by one importer, the company Livela. Unlike other importers, it imports oil products to the country without paying an excise tax and VAT. According to the ministry, Livela brought 27 percent of all imported gasoline and 28 percent of diesel fuel; however, their price doesn’t decrease but increases. (It’s strange that no investigation has been conducted so far in this regard.)

The approach of these two mi­nistries is supported by big chains of gas stations which import oil products. Their owners are against the duties, and believe that this would lead to the monopolization of the market by Ukrainian oil refineries and to an abrupt price increase for oil products (up to 10 hryvnias per liter for A-95 gasoline and up to 9 hryvnias per liter of diesel fuel, if international prices remain constant).

The Ministry of Energy and Coal, relying on the support of Ukrainian oil refineries, or more precisely, lobbying the interests of their owners, takes the opposite position. They expect that not only will such duties protect the market from imports, but they will also allow increased processing of raw material and modernizing plants. Thus, the modernization of these well-off enterprises will be carried at the expense of consumers — passengers of buses and diesel-powered trains, and also by means of inevitable price hikes for bread and other foodstuff, following the trend of gasoline and diesel.

eanwhile, the oil pipeline Odesa-Brody could become one of the efficient Ukrainian factors which have a positive influence on the price of oil products in Ukraine. In this case the Belarusian-Russian conflict could help us, since Belarus plans to transport up to four million tons of oil from Venezuela through this route. If the Azerbaijani oil, promised long ago, is added, which both Ukrainian oil refineries and Europe need, the oil pipeline could be fully used. But perhaps that very tariff and negotiations, which despite promises are still not over, remain the obstacle so far. It looks like Ukraine could take a firm but a bit more flexible position there. Indeed, the first and already half-realized national project is at stake — the oil pipeline Odesa-Brody, and the main thing is the possibility to use it as a transport route between the Black and Baltic Seas by means of enlarging the pipeline in the direction of Plock and Gdansk in Poland. This was scheduled for 2011. Perhaps it will be so.