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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Gasoline Price Jump: Provoked by official "good intentions"

15 June, 1999 - 00:00

Vladyslav MIKHALIOV, Center for Journalistic research
Petrochemicals are catching up to seize food in the consumer price race.
While mostly low octane gasoline and diesel fuel costs rose in May, early
June saw an increase in high octane No. 95 gasoline prices.

Among the main reasons are lack of legal regulation of the market (e.g.,
excise) and the sharp fuel price jump in Russia (from which Ukraine receives
over half of the petroleum derivatives consumed by this country).

According to the Finance Ministry's Consumer Price Oversight Inspectorate,
the highest diesel fuel price rise this May was registered in Dnipropetrovsk
(30-50%), Volyn, Mykolayiv, and Kherson oblasts (10-15%). A-76 gasoline
rose highest in Dnipropetrovsk, Ivano-Frankivsk, and Luhansk oblasts (10-25%);
A-95 in Kirovohrad, Luhansk, Khmelnytsky, and Chernivtsi oblasts (10-19%).

In Kyiv, all these prices remained stable in May. In fact, the capital
is the only place in Ukraine where the costs of certain oil derivatives
are regulated by the state administration; the ceiling for diesel fuel
is set at 80 kopiykas per liter and A-76 at 90. At the beginning of June
unregulated gasoline prices went up sharply. At certain filling stations
No. 95 has leaped from 1 to 1.22 hryvnias a liter over the past few of
days.

Experts of the Psikheya research-and-technology center specializing
in domestic oil market studies believe that lack of legal regulation of
the market is one of the main reasons for the price jump. "As a result,
the importers switched to small supplies to reduce the risk. Reduced supply,
of course, causes increased demand, raising the prices," they informed
the Center for Journalistic Research.

For half a year Parliament and President have not been able to come
to terms on the excise tax on petrochemicals. If the Solons propose to
lower it Mr. Kuchma wants at best to leave it the way it is. Last summer,
he signed the edict On the Rates of the Excise Tax on Petrochemicals, imposing
40-100 ECU per ton of gasoline (depending on the brand) and 15 ECU per
ton of diesel fuel. The executive's adamant stand is explained by the Cabinet's
concern about budget losses resulting from lower excise rates.

Vyacheslav Sokerchak, First Deputy Chairman of the Verkhovna Rada Finance
and Banking Committee, considers that the budget received no additional
revenue from increased fuel excise (the intended amount was UAH 500 million).
Instead, quite some damage was done, since Ukraine's high excise rates
(compared to neighboring countries) "results in the reduction of legal
imports, as last year's taxable sales of excisable petrochemicals went
down two times," he adds.

More evidence of reduced petrochemical supplies is the unofficial information
that the government is substantially lowering fuel supplies for the sowing
campaign. In addition, the Ukrainian market cannot but be affected by rising
gasoline costs in Russia. According to the Russian Business Consulting
Center, Premier Sergei Stepashin declared that, while in May uncontrollable
gasoline costs showed a 7% increase, in June it had reached 23%. Mr. Stepashin
ordered the working out of urgent measures to prevent the "ungrounded gasoline
price increase" last Thursday.

A Finance Ministry source explained to The Day's Vitaly KNIAZHANSKY
that the President's and Cabinet's attack on joint ventures has played
an important role in reducing refined oil supplies to Ukraine. After these
companies were refused tax concessions, imports registered a sharp drop
(two times in the first quarter, then plummeting in April). Moreover, the
war in Yugoslavia (this source added) pushed up world crude oil prices
by 50% and of refined oil by 35%. However, the main reason for the panic
on the Ukraine is the absence of coordination between the legislative and
executive. At present, every enterprise accrues the excise tax however
it sees fit - either under the President's edict or under the law canceled
by the Chief Executive. And the consumer suffers most, of course. In fact,
this price jump may affect such basic goods as milk and bread any day,
for these products have to be delivered, which takes gas.

 

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