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TBILISI: Speculative Prices And Unprotected Population

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  • TBILISI: Speculative Prices And Unprotected Population

    SPECULATIVE PRICES AND UNPROTECTED POPULATION
    Nino Tabatadze

    Georgian Business Week
    http://www.gbw.ge/news.aspx?sid=82201dc7-a287-420 8-b4dc-4cd188719180
    Feb 8 2010
    Georgia

    Pharmaceutical companies, oil importers, cell operators, food product
    importers, are being added to the list of industries suspected of
    colluding with each other to fix prices to the detriment to the
    consumer. The last period has showed significant rise in consumer
    market prices. As a usual, the blame for everything has been shifted
    on the global market tendencies and the GEL devaluation.

    GEL rate has considerably fallen for the last month. The national
    currency devaluation showed the last three years' top rate in January
    2010. As a result, GEL exchange rate against USD was fixed at nearly
    1.75 point. The last month's indicators show that the decline in GEL
    rate has made up 0.04-0.05 GEL in whole. That is, companies have to
    pay 5 GEL more per exchanged 100 USD. The National Bank of Georgia
    (NBG) notes that the GEL rate devaluation was conditioned by seasonal
    factors and the rise in USD rate on global markets. NBG had to sell 73
    million USD at currency auctions since January 15, 2010 to stabilize
    the GEL rate. As a result, GEL rate has strengthened. At the same
    time, it should be noted that along with the devaluation against USD,
    the GEL rate was rising against EUR. Therefore, NBG asserts that
    there are no economic grounds for the GEL rate depreciation and the
    national currency will be stabilized in the near future.

    Last period prices of oil futures have also decreased on global
    markets. At this stage, the price of a barrel of oil ranges from 72
    to 77 USD. Despite the fact, Georgian oil importers note that petrol
    prices cannot be lowered, because oil prices on global markets remain
    very high and there are not enough resources to further decrease
    petrol prices in Georgia.

    Meanwhile, one interesting details comes to the surface, through. In
    July 2008 the price of a barrel of oil exceeded 140 USD on global
    exchanges and the price of a liter of Regular petrol in Georgia made
    up 1.90-2 GEL. At the same time, GEL rate against USD stood at 1.41
    point in July 2008. Today, the price of a barrel of oil is nearly 80
    USD, down over 60 USD compared to the July 2008 oil prices. Despite
    the fact, today, the price of a liter of petrol makes up 1.75-1.77 GEL.

    Taking into account the difference between the GEL rates, in July 2008
    the price of a liter of petrol made up 1.41 USD, while today's price
    is equivalent to 1 USD. The price difference makes up 0.41 USD. Simple
    comparison indicates that the oil prices on global exchanges have been
    reduced 1.75 times, while retail prices in Georgian filling stations
    have been lowered by only 1.41 times since July 2008. This means that
    if we are based on global tendencies, the price of a liter of petrol
    in Georgian filling stations must be no more than 0.80 USD (1.38 GEL).

    If we add that part of oil companies buys European fuel in EUR,
    against which the GEL rate has not fallen for the last month, they
    are exempted from payment of taxes on fuel natural wastes, the profit
    tax has been reduced and in the aftermath of which Georgian filling
    stations are able to cut costs, it becomes clear that fuel prices
    must not be so high in Georgia.

    Seven oil companies operate in Georgia and it should be surprising
    the Georgian fuel market cannot offer competitive prices. All oil
    companies sell fuel for the same prices. Moreover, all of them manage
    somehow to replenish reserves simultaneously. It is natural that one
    tends to shift the blame on cartel prices.

    One additional proof comes to the mind. Armenian media agencies report
    that fuel prices have decreased in Armenia despite the fact fuel is
    as important for Armenia as for Georgia.

    Nobody argues that major part of the Georgian market depends on
    imports and global tendencies are of crucial influence for the domestic
    tendencies. Despite these objective circumstances, the manipulation and
    speculation by prices remains the most relevant issue. The several-day
    downturn of GEL rate has immediately influenced the consumer market,
    while the followed rise in GEL rate has not originated the tendency
    of decline in consumer prices. Moreover, sellers expect that food
    product prices rise further. At this stage, food product prices have
    increased by 5-10 percent. Importer companies do not rule out that
    prices will rise further after all oil product reserves have been sold.

    Who is to protect the consumer?

    The question whether there are speculative and artificially high
    prices on the consumer market of Georgia should be answered through
    analyzing all factors of pricing and market research.

    Experts point out artificially high prices, but this or that competent
    body should be to develop an ultimate conclusion on the issue.

    Unfortunately, there is no such a competent body in Georgia. The
    Counter-Monopoly Office was abolished in Georgia, the country
    with most liberal values, in 2005 as part of the reforms of Kakha
    Bendukidze. Suddenly, it occurred that only the President of Georgia
    had been authorized to protect the consumer interests.

    Georgia-based companies revised their price policy after Georgian
    President Mikheil Saakashvili staged public criticism on them. We
    mean the famous statement of the President on increased prices on
    sugar (by the way, the sugar price increased by 40 percent a couple
    of days ago), salt, pharmaceutical goods and so on.

    It is unthinkable that the government interferes in pricing, but the
    situation becomes desperate when there are artificially high pricses
    on the market and there no other institute in the country except
    the government to interfere in the price regulations. Interventions
    by presidents in pricing policy are not rare occasions. In 2008 only
    the President of Kazakhstan managed to regulate prices in the country
    through the immediate interference.

    It seems the markets in the post-Soviet sphere are unable to thoroughly
    regulate prices. That is the reason what for experts have made public
    statements on the restoration of a counter-monopoly regulator. The
    body is to protect the market from damping and monopolistic prices,
    disclose cartel bargains and provide competitive environment to enable
    all valuable companies to continue development.

    In this case, consumers will be also able to acquire products for
    affordable prices.

    The happy medium should be selected to protect rights of businesses
    and consumers. On the one hand, the counter-monopoly regulator is to
    protect the consumer; on the other hand, it should become neither an
    obstacle for private development nor create artificial problems to
    the business sector. Similar structures successfully operate in all
    developed countries of the world. For some reasons, we have selected
    the Singaporean way. It seems we have made a mistake.

    From: Emil Lazarian | Ararat NewsPress
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