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What are the factors that have contributed to the growth of fuel prices in Kazakhstan?

by March 11, 2021 Market

Vice Minister of Energy Asset Magauov told about the changes in the fuel market and the increase in gasoline prices at a briefing in the Central Communications Service under the President of Kazakhstan today, correspondent reports.

How to set the maximum price for liquefied petroleum gas?

According to the Vice Minister, today the Ministry of Energy of Kazakhstan develops a monthly plan for the supply of liquefied petroleum gas to the domestic market in accordance with the Law of the Republic of Kazakhstan “On Gas and Gas Supply”. At the same time, this plan is formed both outside the electronic trading platforms and through electronic trading platforms. By the end of this year, it is planned to make a full transition to the sale of liquefied petroleum gas through electronic trading platforms.

This will increase the transparency and competitiveness of the industry. In addition, the institute of accreditation of gas network organizations will be abolished in order to reduce administrative barriers for business.

“Liquefied petroleum gas sold outside e-commerce platforms will be released at the wholesale marginal price approved by the Ministry (for the 1st quarter of 2021, the price was approved at 38,701 tenge / ton without VAT, while prices have not changed since January 1, 2018. Wholesale prices for SMG in the domestic market for the 3rd quarter were set at 28,000 tenge / ton without VAT due to lower world prices for liquefied gas), “Magauov said.

During the pandemic, the Ministry of Energy, together with the Ministry of National Economy and the Ministry of Justice, was instructed to take measures to introduce temporary state price regulation for the sale of liquefied petroleum gas for refueling at gas stations. At that time, an order was issued due to rising prices. According to the Deputy Minister of Energy, there were proposals regarding the implementation period of this order.

In order to support entrepreneurs, NCE “Atameken” in conjunction with industry associations has repeatedly made recommendations to government agencies to determine the period of validity of the order. In case of prolongation of activity, entrepreneurs risked reduction of staff and salaries. Another reason is that low prices in some regions could lead to the sale of gas to other regions at higher prices, “he said.

Thus, in accordance with the order, the deadline for the joint price order is set until March 1, 2021.

At present, filling stations set retail prices based on market supply and demand.

According to the analysis conducted by the Ministry of Energy, the current price of gas stations before the pandemic was on average 5% lower in the country. Therefore, current market prices are lower than in the past.

At the same time, even with the exception of the temporary state price regulation, the antimonopoly body within the competence provided by the Entrepreneurship Code shall take antitrust measures, including:

– to determine the monopolistic high (low) price set by a market entity with a dominant or monopolistic position;

– examination of the prices of goods produced and (or) sold by the state monopoly entity;

– monitoring of prices in the commodity markets in order to identify signs of violations of the legislation of the Republic of Kazakhstan in the field of competition protection.

What is the price of diesel fuel in the heating season?

Magauov focused on the supply of diesel fuel and fuel oil during the heating season. According to him, according to the “Schedule of fuel oil supply” approved for 2020-21, 236.6 thousand tons were allocated at 58,000 tenge per ton. As of March 5 of this year, 170 thousand tons (71.5%) were shipped.

In accordance with the Law of the Republic of Kazakhstan “On state regulation of production and turnover of certain types of petroleum products”, the Ministry together with the Ministry of Agriculture approved the “Schedule for approval of areas for refineries and resource holders for the supply of diesel fuel for spring harvesting.” Within the framework of the schedule, 380 thousand tons of diesel fuel were allocated to farmers at the price of 174,000 tenge per ton at POCR LLP and PKOP LLP, 172,000 tenge per ton at Atyrau Refinery LLP (FCA (factory)).

“Taking into account delivery and other costs, it should be noted that the price of diesel fuel for farmers is 13-14% lower than the retail price of gas stations (21-22 tenge / liter). Shipping of diesel fuel from refineries for agricultural producers is carried out on a priority basis. At the same time, control and monitoring of shipments is carried out on a daily basis, “he said.

The Ministry of Energy cannot set low prices for diesel fuel for farmers. Because the ministry is not given this competence.

The cost of diesel fuel for agricultural needs is determined by agreement with the participants of the fuel market and is set voluntarily by the resource holders of petroleum products.

During the first three months of the year, 11.3 thousand tons were shipped.

What is the price of gasoline at gas stations?

Fuel prices in the domestic market of the Republic of Kazakhstan are regulated by the market. That is, supply and demand are taken into account. At the same time, fuel prices in the country do not depend on world oil prices.

Vice Minister of Energy Magauov named the factors affecting fuel prices.

In Kazakhstan, the cost of oil (domestic prices), processing (refining services), taxes and excises, costs of laboratory tests and additives, servicing bank loans, delivery and assembly of tanks, transportation of goods and other related costs affect the price of gasoline. In this regard, I would like to say that the share of each type of oil in the cost of oil depends on its market value and the share of production per ton of oil, “he said.

The final price for consumers is formed on the basis of the wholesale cost of petroleum products, all transport costs to the gas station, storage at oil depots, the costs of the retailer, as well as excises and taxes.

Why did petrol become more expensive at gas stations?

Prices for oil products fluctuate depending on the world economy. Accordingly, several factors affect fuel prices. They:

– Factors of pricing and supply of fuel in the domestic market of neighboring countries and Kazakhstan,

– pricing of fuel (uncontrolled flow) in the border areas with neighboring countries.

“These conditions require a constant search for” equilibrium “in oil prices. In other words, the price of gasoline in our country should not be significantly lower or significantly higher than the prices in neighboring countries. “If domestic prices are low, there is a risk of a shortage of domestic products on the markets of neighboring countries, and if prices are high, there may be a surplus of imported gasoline and, consequently, overfilling of Kazakhstan’s warehouses with domestic fuel and subsequent reduction of refineries.” he explained.

According to the results of three months of this year, the total reserves of petroleum products are at a reasonable level.

“218.7 thousand tons of gasoline, which is enough to meet the needs of the country for 20 days, and 306.2 thousand tons of diesel fuel, which will meet the needs of the domestic market for 28 days,” he said.

According to Olzhas Baidildayev, an expert in the oil and gas industry, many of his analyzes on oil and gas and energy have commented on the rise in oil prices.

“The current increase coincides with a rise in world oil prices, which has led to the misconception that world prices have risen and you are raising gasoline prices,” he said. In a market economy, prices should have risen a year ago, but this did not happen despite the increase in excise taxes on processing from January 2020 due to declining consumption, “he said.

Why isn’t gasoline cheaper in Kazakhstan when oil prices are falling in the world?

The expert responded to the opinion that gasoline should become cheaper in Kazakhstan when world oil prices fall. According to him, market prices have long been “subsidized” and are much lower than world prices.

“Before the price increase, we were ranked 7th in the world for the cheapest gasoline, and now we are ranked 8th-9th in the world (slide showing world gasoline prices, a selection of the cheapest and most expensive prices). Of course, such figures always raise many questions and criticisms in Kazakhstan. Oil production has a cost – it is produced by oil companies. There is oil transportation to the refinery and there is oil refining at the refinery. It is also necessary to deliver finished oil products to gas stations. Of course, gas stations also have their own costs. It should be noted that the margin / net profit of retail chains of gas stations used to be 3-5 tenge, now it is 1-3 tenge per liter in the area, “he said.

In Kazakhstan, oil, like many other types, is sold at a discount for this quantity due to different quality and other economic reasons. This is a reference grade of oil, our oil, like many other types, is sold at a discount / discount due to this quality and other economic reasons. The average Dixon is about $ 3 a barrel. That is, today the world price is at $ 67, our oil is traded / bought at about $ 64 or 27,200 tenge per barrel. 160 liters per barrel is the size of the volume. Dividing 27,200 by 160, we get 170 tenge. This is the world price for 1 liter of oil. Now, if we recall the current price of gasoline in Kazakhstan – about 160 tenge.

“In other words, gasoline in Kazakhstan is cheaper than crude oil. At present, oil companies supply crude oil to the domestic market at a price of about 100 thousand tenge per ton – $ 235, about $ 32 per barrel or about 86 tenge per liter. This is twice lower than the world price, “he said.

According to official data, in 2020, oil refining in Kazakhstan amounted to 15.8 million tons. Today we provide 100% Kazakhstani oil products. The domestic fuel market has been and remains socially oriented.

“If we multiply 15.8 million tons by $ 32 (the difference between world prices and the domestic market), we get $ 3.7 billion. This difference is the incomplete income of oil companies due to such price differences between the world and domestic markets. Prices in Kazakhstan have always been lower than world prices. This amount includes transportation costs, duties, etc. as this oil still needs to be delivered to world and European markets. But in general, our domestic market is “subsidized” by oil companies for about $ 2 billion a year. About $ 1 billion of this unearned income belongs to KazMunayGas, “he said.

In conclusion, according to the Ministry of Energy, the rise in prices for gasoline, diesel, gas and electricity is part of the global trend. We are part of the world economy and we can’t go anywhere. According to experts, prices in the domestic market are always “subsidized”. In the long run, prices are lower than the actual cost. A liter of Kazakh gasoline is cheaper than crude oil in the world, and prices will continue to grow due to global trends.

Source: Kazakhstan 2050