State commissioner: The Anti-monopoly Committee of Ukraine investigates possible collusion of fuel station operators

State commissioner: The Anti-monopoly Committee of Ukraine investigates possible collusion of fuel station  operators
June 21, 2016.

Kyiv, June 21, 2016. The Antimonopoly Committee is conducting an investigation concerning possible collusion of leading operators in the oil market because of their parallel behavior – simultaneous, unidirectional change in fuel prices in the same proportion without any objective justification. This was stated by Valeriy Polyuhovich, State Commissioner of the Antimonopoly Committee of Ukraine, at a press briefing at Ukraine Crisis Media Center. “Now the case is already in the final stage, the presentation with preliminary findings was sent to market participants. We expect answers and will take appropriate measures,” added Mr. Polyuhovich. He noted that the final decision in this case may appear soon.

Check out the full presentation from Valeriy Polyuhovich here. 

However, according to Serhiy Kuiun, Director of “A95″ Consulting Group, the largest operators occupy only 20% of the market in this sector, so this group cannot dictate pricing terms.  “According to the number of players, the Ukrainian market is perhaps the most competitive in Europe. They have just 5-6 major brands, while in Ukraine there are more than 10 networks of only large companies. […] We have four cheap gas stations for each expensive one,” he said. Mr. Kuiun added that the price of fuel in Ukraine and Europe and the dynamics of prices, without taking taxes into account, are around the European average because all these countries import fuel “from one barrel”, according to contracts tied to stock prices. “Ukraine is a very big country, so we have a large buffer of fuel, which makes it impossible to respond quickly to price hikes. Therefore, I would not say that our market behaves inadequately. It has some special features, but in general, according to the absolute value of prices and the nature of changes, it 100% follows European trends,” he stated.

Mr. Kuiun also noted that the increase in prices adopted by the leading operators was largely caused by black market activities. Large companies pay taxes and this interest is included in the retail price of fuel. Meanwhile, shady retailers evade taxes, and so can afford to set a lower price and thus compete unfairly with legal operators. “Competition is when all work on equal terms. And it turns out that those to whom the DFS has no claims and who are recognized market leaders are constantly in the focus of the Anti-monopoly Committee’s attention. And those who are “in the shadows” and sell contraband remain unnoticed and destroy healthy competition,” emphasized Mr. Kuiun. As evidence of this relationship, he drew attention to the fact that the price of diesel fuel changed more synchronously with Brent oil prices than gasoline prices because the black market is less present.

Valeriy Polyuhovich noted the connection, and that the issue of smuggling, counterfeit, illegal trade is beyond the AMC’s capabilities. This issue should come under the authority of law enforcement bodies, the State Fiscal Service and the State Service for Food Safety and Consumer Protection. Besides, as Valery Polyuhovich noted, trends in the Ukrainian market indicate that in terms of prices, 80% of operators are guided by the policy of market leaders that comprise 20% of the market. That is, if the leaders increase prices, other operators will follow their example almost instantly. At the same time, he noted, there is another trend: gasoline prices are increasing almost simultaneously with the rising cost of oil, but when the latter is decreasing, the gasoline price is decreasing very slowly. According to him, this trend says a lot, and gives pause for thought. “We see that during the fall in oil prices, the price of A-95 was relatively stable, while during the rise in oil prices, it went up simultaneously. This is the so-called phenomenon of price asymmetry “a rocket and a feather” – a distortion of competition in the retail market. When oil rises in price, the gasoline price at the fuel pumps increase at rocket speed. When oil drops in price, gasoline prices decline very slowly, like a feather. So, this term derives from there,” explained the  state commissioner of the Antimonopoly Committee of Ukraine.

Vadym Zaporozhchenko, representative of the Ministry of Energy and Coal Industry of Ukraine, informed that the Ministry developed a draft decree on creating the interdepartmental  group to establish cooperation between the participants of oil and oil product market. “It will be an analogue of the existing expert-analytical group, but more formalized. Its composition and status will be approved. Both the market operators and experts in this field will be involved in activities of the group,” informed Vadym Zaporozhchenko. He noted that the group will also develop proposals on strategies to combat the black market. Vadym Zaporozhchenko added that the draft decree is pending legal opinion of the Ministry of Justice and then will be submitted to the Cabinet of Ministers. He also reminded that the Ministry of Energy is authorized only to monitor the market, but cannot influence the prices.