MOL and government attacked over petrol prices
Published in The Budapest Times and Budapester Zeitung, Aug 2005
The senior economist of Hungary’s dominant oil company MOL last week predicted an end to months of fuel price rises that have provoked widespread protests against MOL itself and against the government’s taxes on fuel.
László Varró said that during the month of August, the retail price of petrol in Hungary will stabilise at an average of HUF 275 (EUR 1.13) per litre. Substantial price fluctuations are unlikely in the weeks to come, he said.
Haulage companies have been among the fiercest critics of the prices, with the Hungarian Road Haulage Association (MKFE) failing, despite protracted talks, to persuade the government to reduce the excise tax on fuel by HUF 10 per litre.
Excise tax on unleaded petrol is HUF 103.5 per litre. Additionally, on top of every purchase comes a 25% VAT charge. All-inclusive, Hungary’s retail prices for motor fuel are higher than the EU average and higher than prices in most neighbouring countries, including Austria.
The manager of an international transportation company told The Budapest Times and Budapester Zeitung that he finds the local fuel price excessive.
"I run a fine art shipping firm, so fuel costs are a big part of my operating expenses," said Jeff Taylor of Budapest-based First European Shipping. "In many cases, our competitors are firms operating out of neighbouring countries. It’s a weight around our shoulders to be paying the highest fuel costs in the region."
Central European automotive industry analyst Pál Négyesi questioned whether the levels of tax paid on fuel are acceptable.
"If this money were used for purposes like building highways, I’d have no problem," he told The Budapest Times and Budapester Zeitung. "But as the Hungarian public doesn’t see where all this excise tax ends up, it is hard to justify such an amount."
"MOL allocates its prices according to the operative legislation and according to the relevant market situation," György Bacsur, MOL’s head of corporate communications, told The Budapest Times and Budapester Zeitung. "If it were to sell at a higher price, it would lose market. If it sold at a lower price to squeeze out the competition, the EU authorities would heavily fine it for that. On the tax content of fuel prices, MOL has no comment. It is up to the government in power to decide," he added.
What’s it worth?
As shown by European Commission data, the average Hungarian price for 1,000 litres of Euro95 gasoline in the week beginning July 25 was EUR 1,109.76, including taxes, 2.3% higher than the EU average.
On the other hand, when prices not including taxes are considered, the Hungarian price is EUR 453.88, which is only 0.77% over the EU average.
To go even lower, toward a "real" value of motor fuel, a glance at the wholesale market can be instructive, commodities expert Mark Griffith advised The Budapest Times and Budapester Zeitung.
"The Nymex 1,000-barrel gasoline future for August 2005 is currently trading around USD 1.74 a US gallon," he observed. "Given that one US gallon equals 3.785 litres, that makes 46 US cents a litre."
That would give a price of EUR 370 for 1,000 litres.
Nevertheless, it is difficult to know whether to criticise MOL’s pricing policies, either from a business or a consumer point of view, according to ING Bank analyst György Barcza.
"As a privately owned, listed company, it should focus on long-term added value to shareholders. It has been a very well-managed company, with one of the best returns in this region," he said. "From a consumers’ perspective, gross fuel prices are above those in regional peers, like Slovakia, the Czech Republic or Poland, but MOL’s quality is well above average, due to heavy investments. In this region, only MOL and [Austrian oil company] OMV can produce the best quality fuel products, and MOL’s are considered by some to be better."
"The quality of fuel produced and sold by MOL fulfils all the highest quality requirements set by the EU," Bacsur said. "As a matter of fact, it already fulfils the criteria set for 2009 by the EU."
Watch the competition
Meanwhile, discount filling stations are gaining ground in Hungary, with fuel at a significantly lower price.
"We are on average HUF 10 cheaper per litre than MOL," said Emese Danks, communications director of hypermarket operator Tesco Hungary, which maintains 16 petrol stations in Hungary and plans to open another eight to ten this year. "We are trying to keep the prices as low as possible for our customers, within our business interests," she added.
"The filling stations operated by supermarket chains do not have to generate or earn profit, as the owner companies earn their profit from the supermarket," remarked Bacsur. "Nevertheless, these filling stations do not offer the same service level and quality as filling stations operated by MOL or other well-known oil companies."
Magyar Autóklub, a motor vehicle lobby group, runs another discount filling station chain. This organisation asked the Competition Office in 2001 to look into MOL’s pricing practices, but the conclusion was that MOL had not abused its market dominance. Other companies in the energy industry have also attacked MOL over its pricing policy.
Since MOL also operates refineries, from which some competing oil retailers in Hungary buy wholesale, criticisms voiced last month by Shell Hungary CEO István Varga referred to MOL’s wholesale prices. Competition Office official András Bodócsi also voiced concern that MOL is increasing its wholesale prices more than the retail price, which might be a means of forcing competitors out of the market in a violation of the Competition Act.
"There are eight to ten refineries in Eastern and Central Europe from where any of our competitors, and any of their filing stations, could and probably would buy fuel for a better price," said Bacsur, commenting on the topic for this newspaper.
Back in June, the main opposition party, the Fidesz-Hungarian Civic Alliance, challenged the government to reduce taxes on fuels in the interests of the Hungarian economy and freight forwarding companies. It said the retail price should go down by 10%. The current high prices cause not only truckers but even many car-owners to buy fuel outside of Hungary, which results in the loss of billions of forints in revenues, said Fidesz MP János Fónagy, a former transport minister.
In July, Tibor Szanyi, a state secretary at the Economy and Transport Ministry, told the press that high petrol prices are an indicator of a prospering economy. He also said the excise tax imposed on petrol cannot be reduced, claiming it is already set at the minimum level under EU regulations.
MOL has consistently blamed global oil prices for its increases in domestic retail prices.
