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Abnormally high fuel prices in Poland. It can be changed!

1 Feb 2019 11:32|Marcin Lipka

"Why countries like Germany or Austria are able to protect their citizens from the imposition of the dictatorship of oil companies, and Polish drivers have to accept petrol prices that are over 0.30 PLN/litre higher than the price of petrol? It is necessary to take urgent regulatory action, which will increase competition between fuel companies and give Polish consumers defence against the negative effects of oligopoly," writes Marcin Lipka, Conotoxia Senior Analyst.

The latest data from the European Commission showed that fuel prices in Poland started to rise in the last week of January. Unleaded petrol has increased by 0.04 PLN, with a litre of this fuel costing on average 4.79 PLN. This is ridiculously high, taking into account market events.

The world is almost flooded with this fuel. This is shown both by the high stocks and the record low margin gained from the processing of crude oil into petrol by global refineries. The popular unleaded oil accumulated a lot due to a huge increase in light oil production from US shale, which is mainly processed into gasoline.

The oversupply of the raw material is also evident on the ARA (Amsterdam-Rotterdam-Antwerp) wholesale market, which sets prices for refineries across the continent. For over two months, the price of petrol has been in the range of 1.30-1.50 PLN per litre, currently 1.41 PLN. Recent increases in oil prices have not had a clear impact on petrol prices, which only confirms the fact that the global market is oversupplied with this fuel.

Perfect situation but not for Poles

ARA market quotations at a level of approximately 1.40 PLN/litre (the average price in the last two months) should correspond to a retail price of about 4.40-4.50 PLN/litre at Polish pumps. Meanwhile, the prices charged are overstated by more than 0.30 PLN and amount to 4.79 PLN, according to the European Commission's data from January 28th this year. Therefore, consumers do not benefit from the very low wholesale prices of the popular "95", which (expressed in the Polish currency) are within the limits of more than two-year lows.

An important part of the Polish retail fuel market analysis is also the European Commission's data on the cost of refuelling petrol excluding taxes. The data shows whether the Polish fuel market is efficient and competitive, as the retail price is published "cleansed" of fiscal factors that vary across the EU. In Poland, the popular "95" price is 51.9 euro cents per litre (2.23 PLN). Only three EU countries have a higher price. On average, it amounts to 48.7 euro cents (2.09 PLN). In Poland, this price should be lower than the EU average because it has its own refineries (demand for petrol is fully satisfied by domestic production) and the fact that more than half of the processed crude oil is delivered by the cheapest possible method, i.e. via pipelines. In Germany, despite significantly higher labour costs, the retail price of lead-free oil is 46.3 euro cents (1.99 PLN) excluding taxes, i.e. 0.24 PLN less than in Poland. The situation is similar in Austria, where the price is 48.1 euro cents (2.07 PLN), i.e. 0.16 PLN less than In Poland.

Poles are not in a position to take advantage of the global and European trend of lower fuel prices, and the driving force behind this fact may be distorted competition based on oligopolistic markets (only a few major conglomerate sellers control the majority of supply). Interestingly, Germans and Austrians had a similar problem with fuels a few years ago. How did they deal with it?

Consumers know nothing and oil companies know all

In Poland, as in most countries in the world, the fuel market is dominated by several companies. Some of them extract oil globally and also process, store, distribute and sell it. The others have no access to oil deposits. The situation in Germany and Austria is exactly the same.

Oil companies have precise information about the market. This is a result of both their experience and general business knowledge, as well as continuous research, which in many cases is based on artificial intelligence allowing for almost flawless adjustment of the optimum retail price for maximising revenue.

In turn, consumers have practically no information about the market. They do not know whether the fuel offered by the seller is at a price including an average margin or whether they are overpaying for it. It is not worth looking for somewhere else to fill up, because it takes time, and subsequent kilometres also cost money. Theoretically, although they have the choice of not refuelling, they become slaves to the petrol station.

Buyers cannot replace the fuel with any other product, and their bargaining power is almost zero. The current situation confirms this. Apart from a few cases (some stations at hypermarkets or discounts), prices are too high, but there are no cases of refusing to buy petrol or diesel either.

Interestingly, there is no need for illegal agreements (e.g. cartels) in order to take advantage of a privileged position. The manufacturers' know-how and their research on consumers needs are so extensive that the strategy of keeping prices high does not require any communication.

Price transparency as a key factor

The problems observed in Poland are not new. However, it may be concerning that nobody particularly cares about them. Both in Germany and Austria, the anti-monopoly offices are trying to counteract the asymmetry of information on the fuel market and the systemically privileged position of fuel corporations.

For this purpose, Germany has introduced a statutory obligation for petrol stations to publish any changes in the price of fuel and to send this information to a specialised unit at the Bundeskartellamt (Federal Anti-Monopoly Office). This information is provided free of charge to consumers, who, among other things, can check fuel prices at any station in any region of the country via smartphone apps.

The Austrian Bundeswettbewerbsbehörde (Federal Office for Competition Protection - BWB) went one step further. In addition to the obligation to publish the prices of each available fuel at all Austrian petrol stations, prices can only be increased once a day (discounts, however, can be more often). It is also forbidden to raise prices before periods of increased demand, e.g. holidays.

Mobile app as a map to refuelling

The activities of antimonopoly offices are intended to increase competition between fuel companies, which have dominated the fuel market in Germany and Austria. In turn, consumers gain the full picture on prices in the area where they work, live or travel. This does not disrupt the principles of the free market, as suggested by representatives of the fuel industry, but strengthens competition by reducing the asymmetry of information.

The fuel industry had to adapt to the current regulations. Some of its members started a price war, offering, among other things, a guarantee of the lowest price within a distance of a few kilometres from a particular station in order to attract customers. Updating the information available in the apps is, of course, of key importance, and this can only be guaranteed by an obligation imposed by the antimonopoly authorities on the petrol stations.

The fact that apps are widely used is also crucial. In Germany, the most popular apps - Clever-Tanken and Mehr-Tanken - have 5 million downloads on Android alone, and in total, drivers can choose from dozens of apps dedicated to showing prices at petrol pumps.

Poland may copy these solutions

In order for Polish consumers, as well as German and Austrian consumers, to have access to current fuel prices 24 hours a day and without any additional costs, legislative changes, which will force the petrol station to publish current prices of any fuel in their offer are needed.

A study conducted by the Bundeskartellamt in 2011 estimated that if greater competition on the fuel market reduces average prices for consumers by 1.5 euro cent (approx. 0.065 PLN), this will translate into annual savings for drivers worth 1 billion euros (approx. 4.3 billion PLN).

If price transparency on the Polish fuel market had a similar effect (approx. 0.06 PLN/litre), one could count on roughly 1.5 billion PLN (in Poland, about 25 billion litres are sold per year) of domestic savings, i.e. approx. 100 PLN per household. Of course, those who drive a lot and would check the prices before each trip to the pump could save much more.

1 Feb 2019 11:32|Marcin Lipka

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