Why the sudden rise in oil products prices in Azerbaijan?

Oil&Gas Materials 12 December 2013 16:08 (UTC +04:00)

Baku, Azerbaijan, Dec. 12

By Aygun Badalova - Trend:

Since early December the retail price of oil products, in particular gasoline and diesel fuel in Azerbaijan, an oil producing country, has increased, costing the consumer an average of $0.25 per liter for gasoline and about $0.20 for diesel products.

The retail price on Aİ- 95 octane gasoline was set at 0.8 manat ($1.02) per liter and retail price on Aİ- 92 octane and Aİ- 80 octane gasoline - 0.7 manat ($0.89) per liter compared to previous 0.6 manat ($0.765) and 0.55 manat ($0.7) respectively.

The retail price on one liter of diesel fuel was set at 0.6 manat (0.765) compared to previous 0.45 manat ($0.57).

When speaking about gasoline prices in general one must take into account several factors. The most important factor in setting the price of gasoline products is the worldwide balance between supply and demand.

The rise in the price of crude oil on the world markets causes a rise in gasoline prices. For instance, in the first half of 2008, when world oil prices began to go up rapidly and by summer reached record highs of $140 p/b, a significant rise in gasoline prices was observed in many countries of the world.

In Azerbaijan, the last changes in tariffs on oil products were observed in January 2007. At that time oil prices on the world markets stood at $57p/b. It should be noted that oil prices in Azerbaijan remained stable during the world oil price boom.

Today, the price of crude oil stands at about $110 per barrel.

Another factor is the increase of the number of cars in the country.

From 2007 the number of cars in Azerbaijan increased from 617,000 to 959,000 according to Ilkin Majidov, the secretary of the Tariff (Price) Council of Azerbaijan.

"During the last seven years the country's domestic demand for gasoline increased from 800,000 tons to 1.3 million tons; the average wage increased from 215.8 manats ($276) to 417 manat ($534); GDP per capita volume increased from 3,300 ($4,224) to 5,900 manats,($7,552)," Majidov told Trend.

The third main factor contributing to the cost of gasoline are taxes. The rise in gasoline prices will lead to an increase of tax receipts for the state.

"The large share of additional funds which will emerge after increasing the (gasoline) tariffs, will go to the state budget in the form of taxes," said Majidov.

The changes in tariffs on gasoline is a normal process, says Rovnag Abdullayev, head of the State Oil Company of Azerbaijan (SOCAR).

He believes that it will contribute to the increase of tax receipts that in turn will expand the opportunities for socio-economic projects.

In spite of the recent rise in retail prices on gasoline in Azerbaijan they remain lower when compared to those not only in European countries, but also in most of CIS countries.

As of November 2013, the average price of gasoline per liter world wide was $ 1.467 per liter, according to Global Petrol Prices.

In two other South Caucasus countries, Georgia and Armenia, gasoline prices amounted to $1.19 and $1.38 respectively. In Russia, another major oil producer, prices hovered around $1.11. On the other hand nearby Turkey comes in second to last place, behind Norway, as the most expensive countries to buy gasoline; $2.37 dollars in Turkey and $2.78 in Norway.

The rise in gasoline prices in Azerbaijan has caused a stir among the population who fear a ripple effect will lead to rises in other products and services in the country, especially foodstuff and transport.

Majidov, the government official in charge of tariffs, thinks the changes in oil products tariffs will not seriously influence producers of agricultural products because state provided subsidies.

Majidov said that after the changes in tariffs, specific weight of diesel fuel in the cost of agricultural production will amount to 4.7 percent, while subsidies from the state budget will be 1.8 percent.

"As we can see, the profitability in agricultural production is quite high and tariff changes will not have a major impact on products prime cost and the level of profitability," said Majidov.

Regarding the rise in the cost of traveling by public transport, a spokesman for the Azerbaijani Transport Ministry Namiq Hasanov, said that this issue is the prerogative of the Tariff (Price) Council.

"The Ministry of Transport, in turn, did not appeal to the Tariff Council to forecast any increases," said Hasanov.

All statements from government officials lends to believe that most fears of a negative affect of /oil products/ tariffs changes are groundless.