Fuels: Taxes weaken optimistic forecast

Foreign analysts and agencies forecast a price decline in the hydrocarbons sector, but in our country it is not expected any reflection; furthermore it is “aimed” at cost growth

To forecast the oil price for whole year is a difficult mission for the analysis of this sector. A part of them do not want to provide any value on the price level due to the possible speculations. Any price movement depends on many factors. If in the foreign market, the fluctuations occur because of the conflicts in the Arab countries, USD, etc. in our country there are other “mechanisms”. According to the assessments, from the final price of one liter fuel (oil), the government reaches to collect almost 100 percent taxes. Today, a liter oil costs about 190 ALL, while petrol about 195 ALL. Those levels have been almost the same in the last four months, regardless the fluctuations in the stock markets or USD exchange rate.

Traders blame the government taxes, which have caused such level of fuel price. Debate on the real oil cost in the country has caused clashes many times between the institutions (e.g. Competition Authority) and the groups of interests. Analyses treated in the media are strongly objected by the Hydrocarbons Association. For an accurate assessment it is needed many calculations of taxes, tariffs and operational costs (including expenditure). Different analyses result in a profit margin of the companies to about 10 percent from 2-3 percent, which is the allowed level or the one claimed by the wholesalers.

Movement… even taxes in growth

In our country there is no any institution dealing with the fuels statistics. INSTAT treats them according to the price index, but not very clearly according to the unit in ALL per liter. From the observations and constant monitoring, we can say that the fuel price in Albania has increased by about 13 percent in the last two years from 170 ALL to 195 ALL. During 2012, petrol liter reached to the historic record level of 200 ALL. During the pre-crisis period, the fuel cost on average 150-160 ALL per liter, but it started the growth to the current level at the time when the stock markets have has clear developments.

It seems that the taxes are those that burden more, covering furthermore the possibility for speculation in the markets. Since last summer, all kind of fuels have a fixed excise tax 37 ALL/liter, 7 ALL per liter from the circulation tax applied since January 2012 and 3 ALL per liter the carbon tax. All of them are subject to VAT of 20 percent (carbon tax applicable for the petrol is 1.5 ALL per liter).

Finally, by placing under the system of marking and control, through the concession, it is estimated that there will be price increase for all types of fuel at about 20 ALL per liter.

Another effect, according to the experts, is related to the existence of the instruction “On VAT”, which allows no price change. Thus, in case the wholesaler sells the oil to the retail at the price of 3 ALL, this should also be the price applicable to the final consumer. Profit share in this case it is set through the commission. This formulae set by the Government about two years ago does not allows the price movement, i.e. there is no flexibility and according to the Ministry of Finances it is implemented as an alternative to save the individual from the speculation

Meanwhile, the increase of fuel prices has led to the consumption shrink. Revenues collected from the fuels import have has a slight growth in the 10 month period 2012 versus 201. Fuels clearances have had a slight growth, while the revenues from the excise in customs (main tax for the fuels) are decreasing compared to the previous years. But the Ministry of Finance connects the phenomenon of collections decline with the application of the new tax. “This reflects the reaction of the importers to the fuel tax increase since 1 January 2012 with the increase in circulation tax in 7 ALL per liter, which has allowed the companies to promote imports in the last months of 2011″.

Analysis

Forecast for 2013 in local and global markets

Oligopolistic situation, which is transitory, will bring new developments in 2013. Experts of the portal “energjia.al” cite a number of factors, such as Albpetrol privatization and the entry into market of the new operators in the wholesale and retail market. “Also the fuel marking, regardless the minimal impact to the price increase, is expected to further improve the fuels quality and to minimize the smuggling/fiscal evasion in this sector. What is forecasted for sure is still a weak local demand, which may be balanced from the re-exports growth to Kosovo”, it is stated in the analysis.

Main projections on the crude oil price trend during 2013 shows for a fall of this price at least 5 percent compared to 2012. In 2012, average price of crude Brent oil reached to 111.57 USD per barrel, while that of U.S. crude oil reached to 94.26 USD. According to the survey conducted by “energjia.al” in 2013 it is forecasted a slight decline by about 5 percent, given a shrink in oil consumption in the world. More specifically, the International Energy Agency (IEA) said that the world oil consumption, weighted with real economic growth, rose by 2.7 percent in 2012, while in 2013 this figure is expected to be only 2.4%.

Engineer and export of hydrocarbon sector, Maksim Shuli, speaks about the prices tendency, stock market and privatizations

Speculations and taxes will increase the oil price again

Mr. Shuli, what were the key processes in 2012 in energy sector that affected our economy?

On the top I will list the oil privatization failure, on which I will further detail in the following discussions. Last year it is deepened furthermore the problem of the power distribution sector, managed by CEZ, confirming the next failure in the privatization of this company. At the time when the company was privatized, the losses in grid were 32%, now they are 50 percent. Main fault here is of the Ministry of Economy and Energy, because it did not monitor the company continuously and at the time when it failed to implement the project or meet one of the terms and conditions of the contract, it should be immediately penalized. Such privatization was neither held at the right time nor at the proper value. This thoroughly corrupted process showed that the strategic sectors, having significant contribution to the local economy, cannot be managed by non-professional people.

Increasing fuel prices beyond the limits and economic conditions in Albania was another negative phenomenon in 2012. It is completely unacceptable that the oil price in Albania is the highest in the region, even in Europe, and higher than the stock markets and of poor quality – I would say the poorest quality, which cannot be used to fill in the autos.

State failure in oil concession companies, which have been operating in the oil area for many year are not contributing to the budget. Let’s address an open question to the government: how much have the oil companies, which have been operating since years, paid to the state budget? What is the respective amount for “Banker’s Petroleum”? What about ARMO? What about CEZ? Let them publicly disclosed and see the truth.
Another process associated with the concession of fuel sector control and supervision, which to my opinion is considered pure monopoly of the state at the expense of consumers.

What is your opinion on the sale of 4 HHPs? Is the offer of 110 million euro a real value?

Sale of the four state-owned hydro-power plants, respectively Ulez, Shkopeti, Bistrica I and Bistrica II was really surprising. There is no place in the world to privatize HPPs, after have done all necessary investments to renovate them and at the time when one of them generates 15 to 20 million dollars revenues per year without any investment. The mistakes in oil sector continue to be repeated in energy sector. I do not understand why the experts in the field do not write to raise awareness to the public about such big problem.

Let’s talk about “Albpetrol” privatization. What is your opinion on the process and the forecast on the successful process given that the terms have expired?

The winner was announced on 3 November 2012 and within a month period the company should conclude the contract, although there the relevant legal room was found out, as the government officials said, to postpone it for another month i.e. 3 December 2012, again we are not seeing the finalization of such privatization. Company that was offered for privatization was a specific “tailored” company, which for 51 per cent of the share has the same owner with ARMO and we see how they are managing the company.

The rest of the shares belong to unknown companies in this area, which seek to enter in this sector to meet their pre-planned purposes. The Albanian government itself has not prepared “Albpetrol” privatization in transparent way and this was provided with the process speed and the time when it was held. Today it is clear what the assets to be really privatized are. What are the company’s rights after privatization? What will be the relation with the companies that are already operating in the oil fields in “Albpetrol”? What are the company rights that would privatize in new areas of research (List C)? As of today, when the privatization has not occurred, conflicts with the Government has raised about the List “C”, where there are clashes of interests, at the time when for the case of “SKY PETROLEUM”, I think it has been absolutely right, because it has been conducting researches for many years, spending millions of dollars.

At the time when the economic and financial crisis is present today in Europe and America, almost all the world, it is not easy to make such privatization, to borrow money from the banks, when in fact they are in very strict monitoring and this is what the global financial organizations do presently. Today it is spoken about cheap money that is looked for ways to launder it, but it is not easy that such big amount to go without leaving a trace. If such money is taken from banks honestly, it is required for submission of real projects and a quick return term; otherwise within five years it will be the company that will go bankrupt.

What is your opinion on the bid of 850 million euro?

All companies that participated in the auction, except “Bankers Petroleum”, which already had a concessionaire agreement with “Albpetrol”, are not serious companies and do not have experience in the field that should perform their activity. In particular, our oils are of “asphalt-resinous” type i.e. they are heavy oil which in world are compared with some oil fields located in Canada and in such circumstances, I do not know which of these companies have experience in these areas?

I should say that “Albpetrol” value is not real. I refer here to the value set for its privatization and not the scandalous bid was presented in the auction. I want to make an example in order for every Albanian, having not knowledge in this field, to clearly understand it. If we would not go for privatization option, but rather give will concession only the oil field of Patos-Marines – which presently has with concession “Bankers Petroleum” company for a period of 16-20 years, i.e. using only the known reserves that are discovered from our oilmen generation, the profit would be about $ 5 billion, if $500 million would be invested

And if we would discuss only about those reserves, then I would say with competence that the minimum revenues from these reserves would be $12 billion and the maximum would be about $20 billion, then why was necessary to make such privatization at these extremely unfavorable conditions? It is clearly understood that “Albpetrol” value is not what was presented. Government has provided “Albpetrol” unfairly with some other licenses, such as that for the construction of oil processing plant. Public should know that for building such a plant, about 300-500 million dollars are required. Thus the question arises: where will the company that is at the top of the list and candidate to win, invest in the oil extraction or in the new processing plant?

Seeing that almost all licenses have been given, which cost billions and billions of dollars; this means that the auction is nothing but a farce – an attempt to sell the assets of this country that is groaning every day.

We have many precedent cases on huge investment, but without any result, while it has been proved from the studies that our country possesses considerable resources of oil and gas. Given the recent discussions on the division of territories (borders) in the Ionian Sea, I can tell you that the assessments done from the foreign companies in this structure resulted that there are prospects of about 150 million tons of oil and about 400-500 billion cubic meters of gas.

Revista Monitor, 27.07.2013