Rocketing gas prices hit SEE countries

04/08/2008

While consumers endure shock at the gas pumps, costlier petrol can be a boon for public budgets. Despite discontent, governments are unwilling to forego revenues by lowering excise taxes.

By Igor Jovanovic for Southeast European Times in Belgrade – 04/08/08

All the countries in the region depend on oil imports, and the record-high prices have spurred inflation. [Gabriel Petrescu]

Soaring gas prices on the global market are having a big impact on the Southeast Europe region. All the countries in the region depend on oil imports, and the record-high prices have spurred inflation. Consumers feel their standard of living eroding, while businesses scramble to accommodate higher costs.

Regionally speaking, Turkish consumers are being hit the hardest. They buy nearly the most expensive gas in the world, paying close to 2 euros for a single litre of unleaded gas. Six years ago, a litre cost only 60 euro cents.

A full tank of gas now costs Turks around 105 euros – more than some domestic flight tickets. The net minimum wage, meanwhile, is only around 254 euros. Not surprisingly, more and more are coming to rely on public transportation; the first three months of 2007 saw a 10% increase in public transport use.

Another option is to buy a car powered by Liquefied Petroleum Gas (LPG), or transform an existing car to an LPG system, since a litre of LPG costs only 95 euro cents. According to recent statistics, three of every ten cars in Turkish traffic uses LPG system.

Paradoxically, Turks are emptying their wallets for gas even though the country is close to the world's largest oil producers and benefits from profitable contracts. The main reason is high taxes. In all, taxes from fuel products constitute 13.9% of the total tax revenues.

Due to outdated technology, oil processing costs in Serbia are among the highest in Europe. [AFP]

While this may good for the budget, it is hurting consumers. Gas price increases have triggered inflation, with the rate reaching 10.12% -- the first two-digit level in two years.

The same basic recipe for pain -- high gas prices, steep taxes, and rising inflation -- is found across the Balkans. Serbia, for example, boasts the honor of being one of the ten most expensive states in Europe when it comes to unleaded gas. As of July, one litre of unleaded cost up to 1.42 euros, while a litre of Eurodiesel costs 1.38 euros.

As in Turkey, a major reason is taxes. These account for a whopping 50% of fuel prices in Serbia, experts say. Moreover, the state-controlled company Serbian Oil has a de facto monopoly over oil processing in Serbia. Due to outdated technology, oil processing costs are among the highest in Europe.

Serbia must now either find a way to lower costs, conserve energy or use alternative fuels. Meanwhile, high inflation -- estimated at 15% -- is increasing pressure on the government to take action. The authorities have said nothing, however, about the option of lowering excise taxes.

Gas suppliers in Albania also point to taxes as a key factor, particularly the 20% VAT. In June alone, the country saw a 6.8% hike in gas prices, according to the Albanian Institute of Statistics. In July, Eurodiesel reached 1.36 euros per litre.

A handful of companies control Albania's gas market, and prices seem to go only one direction: up. Even when the prices on the international market decrease, this change is not usually reflected on the Albanian market.

Many experts claim that the Albanian government is using the rise in gas prices to reduce the budget deficit. As in Serbia, the authorities have made no move to lower the taxes in the face of consumer agony.

Nearby Macedonia has also seen sharp price rises in recent months. A litre of 95 octane Eurostar petrol now costs 1.26 euros per litre, 98 octane Eurosuper costs 1.28, and Eurodiesel goes for 1.24 euros per litre.

In June alone, Albania saw a 6.8% hike in gas prices. [Getty Images]

Besides making driving more costly, the trend affects the price of central heating. The company that provides central heating to the capital, Skopje, has already filed for permission from the Regulatory Commission to jack up its prices by nearly 60% -- the biggest hike in heating prices ever recorded in Macedonia.

To cushion the shock, the government has put forward a number of measures. These include lowering tolls and vehicle registration fees, or charging trucks less for staying in clearance terminals. But the authorities have not yet considered lowering excise taxes, a move called for by the opposition.

In Romania, diesel oil is more expensive than gas. The only Romanian producer is PETROM, in which the Austrian OMV group has a majority share. A litre of ECO Premium 95 now costs 1.14 euros and unleaded premium 1.13 euros. A litre of Top Euro Diesel 4 goes for 1.24 euros, while a litre of Eurodiesel 4 is 1.22 euros. Romania has a robust auto sales market, and experts believe the trend will continue, although Romanians may shift their interest towards cars that cost less to fill up.

Romanian President Traian Basescu has called on political parties to work together to find a solution, both for rising gas prices and the related trend of inflation in food prices. One proposal has been to reduce the VAT either for gas or food. But as in other countries, resistance can be expected. Such a solution requires adoption by parliament, and unions are already complaining.

(Ayhan Simsek, Manjola Hala and Alina Bandila contributed to this report.)