04.06.08

Prices of crude oil - and consequently gasoline - are climbing to ever more new heights in Russia, and this naturally sparks off protests among the population.

Many experts believe the whole situation has strong links to the over-monopolization of the Russian market of fuels and to the absence of real competition there, in addition to the continued growth of world prices. They say the knotty situation can be untangled if the oil industry is reorganized and if the government introduces efficacious price control mechanisms and allows a deferment in transition to the European standards of quality of the fuel, since many refineries are simply not ready to change over to these standards. If no such measures are taken, the prices of gasoline will set new sky-high records, the experts claim.

West-Europeans who imagine Russia as a monster perched on a huge oil jar and embracing a natural gas pipe at the same time will probably have difficulty in understanding a paradox of nowadays Russian life. Why on earth should a country that tops the global list of oil producers and for years on end makes huge financial gains on the ever more expensive hydrocarbons evidence the gasoline prices that have outstripped the U.S. prices in a number of regions?

A liter of gasoline is 9% more expensive now than it was January 1, while the price of diesel fuel has swelled by 12%. The Vedomosti daily cites the data from the Moscow Fuel Company suggesting that diesel fuel added 5.1% at Moscow's filling stations in May alone, and various brands of gasoline gained 3.1% to 4.6%.

A sharp growth of prices with delivery dates in June, which currently stand about $ 500 per ton, and the lucrative conditions for exports set the scene for another hike of oil product prices last week.  

Russia's Federal Service for Statistics says amassed technology overhauls at refineries in the first half of May led to a reduction of output, Vedomosti writes. This brought about the signs of gasoline shortages on the domestic market. 

Internal supply will reduce further over the short term, as the producers anticipate higher duties for the exports of crude and try to export as much as possible. 

By the year-end, gasoline prices will go up another 20% as a minimum, experts forecast, alleging that this rise will be due in a big measure to the imposition of Euro-3 standards as of this year and the Euro-4 standards as of 2010. Many refineries are simply not ready for this. 

The popular daily Moskovsky Komsomolets quotes Yevgeny Ostrovsky, the chairman of a subcommittee at Russia's Chamber of Commerce and Industries, who says that less than ten refineries in Russia will be able to assimilate the new quality standards painlessly. 

Since the market of fuel is highly monopolized, this puts the customers into a position of hostages of the oil producers' selfishness. 

The changeover does nor promise anything good to airlines either, as they will have to the standard Russian fuel TS-1 to the European brand JET A 1. Experts predict that this will drive the entire Russian aviation industry from engine manufacturing to commercial transportations to the brink of a collapse, as there will be no fuel to pump into the aircraft anymore. The problem is that the prices of kerosene, which has risen by 70% since the beginning of the year, will blast off into outer space. 

The overblown domestic prices of fuel have already left first victims, as a number of large regional fuel businesses have announced their closure. One of them is the Vipoil holding company in the southern Volgograd region that started producing oil derivatives in 1993. A similar report came from the constituent region of Tatarstan, where unofficial sources mentioned a closure of the fuel company Bank Oil Ltd. 

The runaway prices of gasoline and other fuel has generated protest impulses across Russian society, and the impulses have been stronger political wallops of the past years. The Svoboda Vybora /Freedom of Choice/ association of car owners, which does not have links to any political parties, held an All-Russia March of Empty Canisters May 24. The protesters demanded that the authorities slash the gas price from 24 rubles /more than $ 1/ to 15 to 16 rubles per liter and improve the quality of fuel and the quality of road construction works.  

Participants in the actions have drafted an appeal to the Russian government including the above and other demands. "We're a country producing and selling oil, and at the same time our people have to buy gas at prices bigger than in the importing countries," Vyacheslav Lyssakov, the leader of the Svoboda Vybora movement said. 

It is important to create real competition on the market of oil products, believes Sergei Shatirov, first deputy chairman of the industrial policy committee in the upper house of Russian parliament. "The setting up of a genuinely competitive environment in the refining industry will help reduce the prices and raise the quality of gasoline," Shatirov said in an interview with the REGIONS.RU news portal.  

Viktor Gussev, first deputy chairman of the upper house's committee for economic policy, business and ownership relations believes that the state should have the powers to control the prices and quality of gasoline. "The state must control the prices of all types of fuel," Gussev told REGIONS.RU. "There is no referring to any market mechanisms in this respect, otherwise the growth of fuel prices will continue pushing up the prices of foodstuffs."  

Gussev mentioned that only three of Russia's twenty-seven refineries have been modernized. 

Viktor Pokhmelkin, one of the leaders of the Movement of Russia's Drivers apportions all blame for fuel price rises to the state. Prices could be regulated with the aid of antitrust policies or commodity exchange trade of oil products, he said. "There's been much talk around for the past years on the importance of opening fuel exchanges, but things haven't moved an inch, as this wouldn't be profitable for oil monopolies," Pokhmelkin said. 

The government reacted to the protests May 26, with Prime Minister Vladimir Putin making a promise that the excise duties of gasoline and diesel fuel will go down.

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Source: ITAR-TASS