SPECULATIVE PRICES AND UNPROTECTED POPULATION
Nino Tabatadze
Georgian Business Week
8-b4dc-4cd188719180
Feb 8 2010
Georgia
Pharmaceutical companies, oil importers, cell operators, food product
importers, are being added to the list of industries suspected of
colluding with each other to fix prices to the detriment to the
consumer. The last period has showed significant rise in consumer
market prices. As a usual, the blame for everything has been shifted
on the global market tendencies and the GEL devaluation.
GEL rate has considerably fallen for the last month. The national
currency devaluation showed the last three years’ top rate in January
2010. As a result, GEL exchange rate against USD was fixed at nearly
1.75 point. The last month’s indicators show that the decline in GEL
rate has made up 0.04-0.05 GEL in whole. That is, companies have to
pay 5 GEL more per exchanged 100 USD. The National Bank of Georgia
(NBG) notes that the GEL rate devaluation was conditioned by seasonal
factors and the rise in USD rate on global markets. NBG had to sell 73
million USD at currency auctions since January 15, 2010 to stabilize
the GEL rate. As a result, GEL rate has strengthened. At the same
time, it should be noted that along with the devaluation against USD,
the GEL rate was rising against EUR. Therefore, NBG asserts that
there are no economic grounds for the GEL rate depreciation and the
national currency will be stabilized in the near future.
Last period prices of oil futures have also decreased on global
markets. At this stage, the price of a barrel of oil ranges from 72
to 77 USD. Despite the fact, Georgian oil importers note that petrol
prices cannot be lowered, because oil prices on global markets remain
very high and there are not enough resources to further decrease
petrol prices in Georgia.
Meanwhile, one interesting details comes to the surface, through. In
July 2008 the price of a barrel of oil exceeded 140 USD on global
exchanges and the price of a liter of Regular petrol in Georgia made
up 1.90-2 GEL. At the same time, GEL rate against USD stood at 1.41
point in July 2008. Today, the price of a barrel of oil is nearly 80
USD, down over 60 USD compared to the July 2008 oil prices. Despite
the fact, today, the price of a liter of petrol makes up 1.75-1.77 GEL.
Taking into account the difference between the GEL rates, in July 2008
the price of a liter of petrol made up 1.41 USD, while today’s price
is equivalent to 1 USD. The price difference makes up 0.41 USD. Simple
comparison indicates that the oil prices on global exchanges have been
reduced 1.75 times, while retail prices in Georgian filling stations
have been lowered by only 1.41 times since July 2008. This means that
if we are based on global tendencies, the price of a liter of petrol
in Georgian filling stations must be no more than 0.80 USD (1.38 GEL).
If we add that part of oil companies buys European fuel in EUR,
against which the GEL rate has not fallen for the last month, they
are exempted from payment of taxes on fuel natural wastes, the profit
tax has been reduced and in the aftermath of which Georgian filling
stations are able to cut costs, it becomes clear that fuel prices
must not be so high in Georgia.
Seven oil companies operate in Georgia and it should be surprising
the Georgian fuel market cannot offer competitive prices. All oil
companies sell fuel for the same prices. Moreover, all of them manage
somehow to replenish reserves simultaneously. It is natural that one
tends to shift the blame on cartel prices.
One additional proof comes to the mind. Armenian media agencies report
that fuel prices have decreased in Armenia despite the fact fuel is
as important for Armenia as for Georgia.
Nobody argues that major part of the Georgian market depends on
imports and global tendencies are of crucial influence for the domestic
tendencies. Despite these objective circumstances, the manipulation and
speculation by prices remains the most relevant issue. The several-day
downturn of GEL rate has immediately influenced the consumer market,
while the followed rise in GEL rate has not originated the tendency
of decline in consumer prices. Moreover, sellers expect that food
product prices rise further. At this stage, food product prices have
increased by 5-10 percent. Importer companies do not rule out that
prices will rise further after all oil product reserves have been sold.
Who is to protect the consumer?
The question whether there are speculative and artificially high
prices on the consumer market of Georgia should be answered through
analyzing all factors of pricing and market research.
Experts point out artificially high prices, but this or that competent
body should be to develop an ultimate conclusion on the issue.
Unfortunately, there is no such a competent body in Georgia. The
Counter-Monopoly Office was abolished in Georgia, the country
with most liberal values, in 2005 as part of the reforms of Kakha
Bendukidze. Suddenly, it occurred that only the President of Georgia
had been authorized to protect the consumer interests.
Georgia-based companies revised their price policy after Georgian
President Mikheil Saakashvili staged public criticism on them. We
mean the famous statement of the President on increased prices on
sugar (by the way, the sugar price increased by 40 percent a couple
of days ago), salt, pharmaceutical goods and so on.
It is unthinkable that the government interferes in pricing, but the
situation becomes desperate when there are artificially high pricses
on the market and there no other institute in the country except
the government to interfere in the price regulations. Interventions
by presidents in pricing policy are not rare occasions. In 2008 only
the President of Kazakhstan managed to regulate prices in the country
through the immediate interference.
It seems the markets in the post-Soviet sphere are unable to thoroughly
regulate prices. That is the reason what for experts have made public
statements on the restoration of a counter-monopoly regulator. The
body is to protect the market from damping and monopolistic prices,
disclose cartel bargains and provide competitive environment to enable
all valuable companies to continue development.
In this case, consumers will be also able to acquire products for
affordable prices.
The happy medium should be selected to protect rights of businesses
and consumers. On the one hand, the counter-monopoly regulator is to
protect the consumer; on the other hand, it should become neither an
obstacle for private development nor create artificial problems to
the business sector. Similar structures successfully operate in all
developed countries of the world. For some reasons, we have selected
the Singaporean way. It seems we have made a mistake.
From: Emil Lazarian | Ararat NewsPress