Speculative Prices and Unprotected Population

Pharmaceutical companies, oil importers, cell operators, food product importers and so on. The list of the companies, which are suspected of establishment of speculative prices and conclusion of cartel deals on the market, is quite vast. 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 USD 100. 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 USD 73m 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 USD 72 to USD 77. 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 no 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 USD 140 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 USD 80, down over USD 60 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 USD 1.41, while today’s price is equivalent to USD 1. The price difference makes up USD 0.41. 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 USD 0.80 (1.38 GEL). If we add that part of oil companies acquires 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 make accents on 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 the Georgian President 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 inadmissible that the Government interfere in the pricing, but the situation is dramatized ,when there are artificially high prices 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 space 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 obstacle for company 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.