Will fuel prices grow?

By Vestnik Kavkaza

Launching of the standards Euro-3 on January 1st, 2013, will not influence fuel prices, according to Ivan Grachev, Chairman of the State Duma Committee for Energy. “Would it be justified to delay the transition to Euro-3 for a third time? In accordance with the technical regulations and the decision of the government this has already been postponed twice in 2009 and in 2011. Accordingly, the discussion is about whether to postpone its introduction by 1 January 2013 one more time or not. There are, of course, a lot of pros and cons.

The key thing for citizens is whether this will lead to substantial price increases if we suddenly now insist and uphold the decision on a total ban on Euro-2 from 1 January 2013. For me, the overall assessment is as follows: somehow, we have diesel more expensive than in the United States, or at about the same cost, despite the fact that the average salary is ten times lower, the raw materials are also cheaper, however, the outcome is much worse. It is 10 times worse compared to the average salary, and it is also worse in totality.

There are three of the most important factors: corruption, or simply stealing; the retardation since the depth of processing is significantly lower by 1.5 times; and the third is, of course, taxes because we often say that we have extremely good taxes, perhaps the lowest in the world, but to be honest, we have a tax burden on business as a whole double that of the US. Hence we get this price.

Accordingly, the question is if the transition to the Euro-3 will influence these basic factors that determine our price of petrol. This does not affect theft. As for backwardness, Euro-3 and above cannot be produced with backward equipment, so it is necessary to modernize and reduce the backwardness, so the prices will be reduced. As for taxes, in my opinion, it is the first priority for the next year, which will affect the issue in question, regardless of the Euro. Whether we switch to the Euro or not, this factor is the most important part of the change in the price of gasoline and other fuel for the next year. The main influence in the next year will be provided by additional taxes. Firstly, excises. And one should bear in mind that there are already addressed and additional taxes on oil, through an increase in property and severance tax.

In summary, there are no reasons to postpone the transition to Euro-3 this time again, if we so fundamentally analyse the situation. Prices will rise, most likely, but not for this reason, but because of a substantial increase in taxes, a tax burden which is not necessary. This is a little extension of the theme of our conversation, because how do they explain the need to increase taxes? By the way, I note that my committee has voted unanimously against it, that is, our conclusion is negative. However, the Ministry of Finance explains this as follows: we basically live all the time in anticipation of a crisis. Accordingly, beginning in the summer, they adopt pre-crisis laws, and some of the pre-crisis rush, waiting for the end of the economic world, results in additional taxes. My assessment in 2009, when, by the models I consider real and virtual markets, is that there will be no double-dip recession, either in 2010 or 2011, 2012, 2013 or 2014, because it has no objective grounds. And the probability is 0.95 that quite a remarkable budget surplus will be in Russia for the next five years, if they are not stolen; this actually allows all the tax manoeuvres to be performed, including those refinery upgrades, providing investment tax credits, and, in principle, any short-term motives in raising prices on this part would be eliminated. Accordingly, this divergence in strategic assessments leads to a divergence related to raising taxes on our raw materials' companies, which inevitably leads to higher gasoline prices and prices for all types of fuel.”