Tax-exclusive pump prices of gas and diesel were higher than in Austria, a country with negligible oil resources, which shows domestic production hardly has any advantage as far as the consumer is concerned when it comes to price. The increase of competition on this EUR10 billion market would be one of the solutions that could drive prices down, and the Competition Council has a few ideas about how to do that.
“On July 4, 2016, the tax exclusive gas and diesel prices in Romania were higher than the average in the European Union. Still, the tax inclusive prices of gas and diesel in Romania were lower than the European Union average,” the annual report of the Competition Council on the most important sectors of the economy in Romania reads.
This is not a new issue, but despite it, oil companies have never provided any explanation to fully clear things up. Local production covers more than one third of the demand in Romania, and comes almost entirely from OMV Petrom, the only local oil and gas producer. The tax-exclusive price per liter of diesel includes all the costs of producing it, from buying the oil, the processing costs, the transport to pumps to personnel expenses and the profit margin, of course.
Oil companies operating in Romania have lower labor costs. Net average wage in Romania is EUR460, while in Austria it stands at more than EUR2,000. Supply costs of refineries in Romania should not be any higher than those in Austria. For instance, Petrom processes solely its own oil, which entails low costs to take the oil from its oilfields to the refinery, while the refineries of Rompetrol and Lukoil get their oil from their parent groups.
On the other hand, the underdeveloped road infrastructure in Romania might lead to higher transportation costs from refinery to gas stations. Under the circumstances, the Competition Council has a few ideas that might stimulate competition the sector and help cut prices.
The institution proposes creation of a database and of a mobile application to be used for comparing fuel prices. This is not a new solution, as the competition watchdog has previously suggested it for the food retail, but the project did not go further than the idea stage.
“This database must be the core of a web and/or mobile application consumers can access for free to learn where the ten closest gas stations are, for instance, and the prices they charge (maybe shown in increasing order to see what company charges the lowest prices),” the Competition Council report reads.
The institution also proposes fuel prices to be displayed at the entrance to highways on billboards that show the following: name of the gas station owner, where exactly it is on the highway and the fuel prices.
“Increasing or diversifying the fuel supply could lead to a decline in the price of such products and ultimately benefit consumers. Yet for the competitive pressure to have this effect on the companies already active in Romania, it needs a reaction from companies with sizeable financial resources. A solution would be entry on the fuel market of the major hypermarket/ supermarket chains operating in Romania.”
Changes to the licensing process, too, should encourage new players to enter the market.
Four major oil companies held by international giants dominate fuel retail in Romania, as they account for more than 70% of the 2,000 active gas stations, which generate almost 90% of the fuel sales volumes in the country. The four are OMV Petrom Marketing, OMV Petrom’s retail arm, Rompetrol Downstream, Lukoil Romania and MOL Romania.
(English version by Loredana Fratila-Cristescu)