POST Online Media Lite Edition


Bulgaria monitors motor fuel retail market

Christian Fernsby |
In response to the signals received and the information disseminated in the media about the discrepancy between the significant decrease in petrol prices worldwide (by 47, 4%) in March as opposing to the respective decrease of the national retail prices for motor fuel (by approx. 11 %) for the same period, the Commission informs the public that it monitors retail prices and the dynamics of the national fuel markets.

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Topics: BULGARIA    FUEL   

The Commission points out that in the course of the sector inquiries conducted on the markets focusing on the production chain and distribution of petrol, diesel and propane-butane gas at national level, a number of issues in the development of competition in the sector have been identified.

In this regard necessary recommendations have been passed on to the competent authorities.

For example, in its last Decision the Commission found that internal supplies exceeded the quantities of imports, which together with the lack of sufficient storage capacity in tax warehouses and warehouses for mandatory fuel stocks, the complex administrative procedure and the significant financial investments, related to the construction of their own warehouse, constituted a significant barrier for the importers and producers of fuel.

Therefore, the commission recommended a number of improvements of the market environment by informing the Ministry of Finance, the National Customs Agency, the Ministry of Economy, the State Agency “State Reserve and War-time Stocks" and the State Agency for Metrological and Technical Surveillance of the necessity, according to their competence, to take appropriate legislative and organizational measures for improvement of the competition environment in the production and distribution markets for motor gasoline and diesel.

The Commission declares its readiness to contribute, within the limits of its competence, to the implementation of the proposed measures.

Regarding the influence of crude oil international market price on the retail price of automotive fuels in Bulgaria, several market specificities should be considered.

Those are namely that change in the world market price of crude oil does not affect directly the final retail selling price.

The price of crude oil is a determining component of the production cost of products.

In addition however, there are other costs forming the wholesale price at which merchants buy the products.

In its decision the Commission reflects the percentage breakdown of price components in the petrol A-95H and diesel retail price for the period 2016-2018, as the relative share of the price at which merchants acquire fuels accounts for approximately 35-40 % of retail sales price.

The latter also included costs of bio-component, storage, transport, other costs, VAT and excise duty, as well as a profit margin, which for the period 2016-2018 averaged 4 %.

The relative share of VAT and excise duty in retail price for the same period is around 50 %.

It should be noted that the international quotation for crude oil are futures futures contracts, i.e. the quotations traded during the current month form the price of the raw material for subsequent periods.

On account of this specificity, there is a possibility of a lag in the rise or decrease of the prices for the derivatives gasoline A-95H, A-98H and diesel motor fuel for up to two months.

The exchange rate and the period of turnover of inventories have an impact on the formation of fuel prices in the territory of the EU countries.

For goods with faster turnover, the time to change prices against the dynamics of international quotations and the dollar rate is shorter and vice versa, for goods such as gasoline A-98N this period is longer because of the slow turnover resulting from the more limited demand.

The Commission has established that the time needed to reflect a drop in the price of crude oil on the retail prices of automotive fuels is longer.

The reason is that the seller bought a more expensive resource, which was delivered to the sites and the reservoirs and pipelines are filled with it.

In this regard, the reduced consumption resulting from the emergency anti-epidemic measures introduced in relation to the spread of COVID-19 in the country from 13.03.2020 to the present moment could have a direct impact on the reduction rate of the retail prices of motor fuels in Bulgaria.

According to the public statements of industry associations’ representatives, fuel consumption has decreased by more than 40 % in big cities and motorway roads, and almost 80 % in small towns and villages, and expectations are that this trend is to be maintained.

This leads to a slower realization of quantities of fuels, which are purchased at a higher price.

The Commission also analysed the factors to be taken into account when setting retail prices and influencing their modification.

It is established that the retail market for fuels is characterised by a high degree of transparency and the most significant competitive parameter, by which the companies involved can compete is price.

The market is characterized by high price sensitivity, as price differentials from 1 to 2 cents have a significant influence in the choice of a trader by the customer.

Prices of competing petrol stations located in close vicinity to a particular station are factors that affect the retail price of petrol and diesel fuel among other factors, such as delivery price, fuel distribution costs, sales quantity, demand volume, location of the site, etc.

Not only premises, part of the national gas supply chains have such an influence, but also local chains with presence in a specific geographic area or even in a particular city.

All these factors are being considered by the Commission, in the course of its continuous monitoring of the fuel prices on the market.

Any unjustified price changes that could hardly be explained by objective factors such as international crude oil quotations, introduced restrictive measures, decreased fuel consumption, etc. are under scrutiny.

The Commission assures that if the monitoring raises concerns of possible coordinated behaviour of some retail fuel market participants, the necessary action will be taken to initiate infringement proceedings under the Law on Protection of Competition.

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