Prices of oil products grow anew in Azerbaijan

Without preliminary preparation of the society the Azerbaijan government increased the prices of oil products from 6 January 2006. Thus, the retail price of diesel fuel was increased from 18 to 36 gepiks (some $0.40 instead of $0.20), light kerosene from 16 to 36 gepiks, home stove fuel from 11 to 36 gepiks. The retail prices of aviation kerosene grew 33.2%, from 210.7 to 280.6 denominated manats.

The previous rise in prices of energy resources dated to 2 November 2004, when the natural gas prices were increased 2.3 times, liquefied gas - 20%, retail prices of petrol AI-96 - to 2000 manats, AI-92 - 1800 manats. If the government went to rise of prices under the influence of the International Monetary Fund, now the Tariff Council of Azerbaijan increased the prices oil products on the base of the appeal by the local enterprises.

Major reasons for increase of retail prices were as follows:

- necessity for increase of inner plant wholesale prices of producers and adjusting the domestic prices of oil products in Azerbaijan to international prices. If earlier the cost of diesel fuel was cheaper than the world prices 3 times, light fuel approximately 4 times, aviation kerosene approximately 2.5 times, today the difference varies between 20-30%;

Prices of Azerbaijani oil products in comparison with the nearest foreign countries


Country

Currency

Diesel

fuel

Non ethylene petrol

Currency

Diesel

fuel

Non ethylene petrol

Azerbaijan

USD

0,39

0,39

AZM

1 800,00

1 800,00

Georgia

USD

0,68

0,70

AZM

3 104,89

3 234,26

Russia

USD

0,56

0,61

AZM

2 563,60

2 786,53

Ukraine

USD

0,68

0,70

AZM

3 122,56

3 214,40

Kazakhstan

USD

0,44

0,45

AZM

2 020,48

2 066,40

Belorus

USD

0,54

0,66

AZM

2 479,68

3 030,72



- to exclude opportunities for merger of different oil products and their sale through retail network, which will result in increase of the quality of oil products traded through retail system;

- to prevent illegal export of oil products from the countrСѓ. Increase of prices will enable to avoid speculation of the oil products at the domestic market, change of its quality and sale at the market of nearest foreign market at prices considerably lower than the world prices. As of data, some 15,000 tons of oil products a month were realized in this method. Both the public budget and the SOCAR suffered great losses. However, he difference in prices again offers favorable terms for delivery of oil products to other countries where they are expensive;

- to decrease secret subsidizing in FEC. Namely to decrease the amount of indirect subsidizing for Azerenerji there were taken measures for increase of prices of diesel fuel, light kerosene, stove fuel and aviation kerosene. In whole, the increase will enable to cover some expenses of the SOCAR;

- to increase public incomes. According tРѕ the calculations by the Ministry of Finances, additional public budget incomes in the amount of 82m new manats are expected from the rise of prices of oil products. Additional revenues are expected, in particular, from the excise taxes, VAT and profit taxes. The forecasts on excises were set in the amount of 129m manats, while incomes from the financial settlements will reach 21m manats. For instance, additional VAT incomes are expected to comprise 30m manats against the forecast of 385m manats. Profit taxes forecasted in the amount of 869.4 million manats will grow by 31m manats in connection with the rise of prices of oil products. However, the Ministry of Finances urges that there was not a necessity for correction in the 2006 projection due to rise in prices of oil products, as they comprise only 2.6% of general budget incomes.

In difference to November rise in prices of oil products in 2004, 2005 public budget included funds for compensation payment to low-income families in the amount of 34bn old manats with respect to cover the expected rise in gas prices and 50bn manats in connection with the rise of prices of gasoline and diesel fuel, the 2006 public budget does not include such financing. According to Heydar Babayev, the Minister for Economic Development, the additional expenses projected in the public budget can be balanced with the forthcoming additional incomes, which is conditioned with the rise in tariffs. Annually, the public budget sets up funds for the fuel for the transport conveyances of the Defense Ministry, which holds a large park of automobile conveyances and other bodies of the executive bodies. For instance, funds for the common consumption of diesel fuel in 2006 comprised 692,000 tons.

The Minister for Economic Development rules out that a rise in prices of some oil products could lead to inconsiderable inflation growth. According to Heydar Babayev, at the first stage 2-3% inflation growth is possible in agriculture. The government intends to keep to the forecast on inflation rate on the results of 2006.

The Minister did not excluded increase of price in transport sector in relation to the increase of the diesel fuel tariffs. It is possible at the fist stage, as a part of transport uses diesel fuel, other - petrol. The first got more incomes than the latter. One of the goals in increase of diesel fuel tariffs is to raise the difference and strengthen competition, Babayev stressed. There is not similar difference between petrol and diesel fuel in any other country. These prices are increased in Azerbaijan, but they still remain lower than world prices. For example, diesel fuel costs 70 cents per liter in Georgia, 51 cents - Russia, 40 cents - Azerbaijan. The difference allows exporting of the oil product to the countries, where its price is higher. Besides, there are many cases of mixing of diesel fuel with other products.

At present the Azerbaijans transport sector consumes around 350,000 tons diesel fuel, the government states.

Meanwhile, the transport sector replied to the announcement with illegal rise in fares. The Executive Power of Baku appealed to the Tariff Council with a proposal to increase the fares in city transport twice. The special weight of diesel in the transportation in the Caspian Shipping Company is 6.3%, in railway transport 6.7%.

In its turn the Azerbaijan State Railway Department (ASRD) succeeded to present to the Transport Ministry its proposals on increase of tariffs for cargo and passenger transportation. Following rise in tariffs for some types of oil products, including the diesel fuel, which is used by diesel locomotives, the ASRD states the necessity of increasing the transportation tariffs. The ASRD regards as expedient the increase of tariffs in the first half-year. However, the transport Ministry rejected the appeal, stating that tariffs are the state policy and in current situation any rise was out of question.

The analysis showed that today the advantages and disadvantages of the increase of oil products worth to attract equal attention. Firstly, the current situation in the fuel-energy complex shows it really needs reformation for profitable activity of natural monopolies¬, which for a long period. Secondly, if Azerbaijan wants to integrate into the world economy, it should, like all developed countries, apply unified prices for oil products. Thirdly, increase of fuel prices will promote their rational use.

On the other hand rise in prices of oil products for Azerbaijan 40%-poverty ratio can result in the complication of the situation. This is the category of people who mostly suffer from price rise. Low minimal salaries along with the no less rat of unemployment do not obviously favor the low-income families.

The issues should be studied as soon as possible. Though the government promises not to increase domestic oil prices, in particular, gasoline and liquefied gas, it is still in force for the nearest perspective. After…

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