Fuel Price, Excise, Strategic Reserves of Oil and Petroleum Products – What Do We Know About It?

Photo: Courtesy of Tomislav Mićović

Fuel prices plummeted again in February, causing concern in the local market, especially after additional forecasts that the cost of crude oil will continue to rise. Although it is impossible to stay immune to the changes happening in the global market, proving the trend of increasing fuel prices in almost all parts of the world, something can still be done.

To increase the security of motor fuels supply, it is necessary to form strategic state reserves of oil and oil derivatives that will ensure the functioning of society in the event of local, regional, or global disruptions affecting oil and oil derivatives. These are the words of Tomislav Mićović, Secretary-General of the Association of Oil Companies of Serbia.

It sounds very reasonable, contrary to the witty comment of a driver who advises you always to top up the tank for a thousand dinars so as not to feel the price increase. Since there is no place for jokes when talking about important things, we asked Tomislav Mićović what has been done so far to protect the local market from the risks in the supply of oil and oil derivatives.

EP: Increase in excise duties on derivatives in Serbia tells us that we should expect higher fuel prices throughout 2022. What are the predictions?

Tomislav Mićović: Fuel prices in Serbia, as in all countries in the region and Europe, have never been higher in the last ten years than today. To get a clearer picture, when we compare fuel prices in different periods, we should also compare the market conditions relevant to those periods. First, I would like to remind you that Serbia has largely changed its excise taxation policy by introducing the Law on Excise Duties in October 2012. The dynamics of the rapid growth of excise duties were adopted so that by the end of 2016, the total state duties on fuel in Serbia became significantly higher.

Even then, we were worried that we were facing a complex process of adapting national regulations to the Acquis Communautaire, which would substantially raise costs in producing and trading petroleum products. The increase in excise duties on motor fuels, the introduction of fees for the formation of required reserves, fees for improving energy efficiency, fees for fuel labeling, and fees for quality monitoring contributed to the increase in government revenues. On the other hand, due to the growth of state duties, the price of oil derivatives also increased, which slowed down consumption growth, gave impetus to the grey market, and part of the fuel supply consumed in Serbia was redirected to neighboring countries.

The biggest change in the fiscal burden occurred in the trade of LPG, the most environmentally friendly oil derivative, followed by diesel, which drives industry, transport, agriculture, and construction and thus, to a greater or lesser extent, affects almost all products and services. Budget revenues have increased significantly, which is indisputable. Still, it would be good if the competent state authorities analyzed of the possible adverse effects of large fiscal duties on the economy and society in general.

EP: Recent increase in the price of a barrel of oil of $10 in just 10 days was a shocker, but does it always have to mean significantly higher prices at gas stations in Serbia?

Tomislav Mićović: There is no national market, including the Serbian market, that can remain isolated from the changes happening on the global level. To mitigate the drastic increase in the costs for the economy, i.e., the increase in the prices of products and services, each country can adjust excises, VAT, or some taxes, until the energy prices return to an acceptable level. Such measures are being considered in many countries. In the first week of February, a barrel of BRENT, the European reference oil, was sold at prices above $91. Although analysts rarely agree, they now share the opinion that during this year, oil could exceed the price of $100 per barrel, even making the annual average above this level.

Photo-illustration: Unsplash (Kartikay Sharma)

The Government could certainly declare such an increase as a disturbance and react with measures that would prevent a further rise in fuel price. High energy prices could greatly slow down economic growth, much needed in the post-pandemic period, according to most world economists.

EP: When we compare gasoline prices on January 24, 2022, the cost of gasoline in Bosnia and Herzegovina was $1.39, in Northern Macedonia $1.44, and in Serbia $1.63. On that day, diesel price was $1.71 in Serbia, 1.41 in Bosnia and Herzegovina, and $1.3 in Northern Macedonia. How do you comment on that?

Tomislav Mićović: Once you exclude the state duties of each of the countries from the prices listed, you would be surprised to see that the differences in prices between these companies have been close to non-existent. Some difference does exist because not all countries have equal access to sources of oil or oil derivatives, and business conditions and market competition is not the same. The key difference in retail fuel prices arises when adding state duties, which vary greatly from country to country.

Interviewed by: Milica Marković

Read the story in the new issue of the Energy portal Magazine ELECTROMOBILITY.