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Ukraine: Gasoline Prices Expected To Rise Further

By Viktor Luhovyk and Stefan Korshak

Kyiv, 7 January 1998 (RFE/RL) -- A few months ago, Ukraine was once of the cheapest places in Europe to buy gasoline - despite the fact that Ukraine imports nearly 90 percent of total gasoline supplies.

Under pressure from international lenders to liberalize its markets to qualify for loans, Ukraine allowed gasoline prices to rise. In Autumn, gasoline prices averaged less than 30 cents per liter. But price increases of as much as 50 percent in September, and the de-valuation of the Hyrvnya in November hit motorists hard. Several local administrations, including Kyiv, froze gasoline prices for November. But, fuel industry analysts said it was inevitable that the government would impose new regulations to try to stabilize gasoline distribution and boost tax revenues.

The close of 1997 brought mixed news for motorists, as Parliament increased the import taxes on high-octane gasoline by ten percent, but rejected a proposal to increase duty rates on low-octane gasoline. All grades of fuel will carry a flat ECU 15 ($16.70) per metric ton customs-processing surcharge, according to the new law. But the law also sets out a multi-tiered excise rate based on the premise that the more powerful the fuel the more it should cost to import. At the top of the performance spectrum, a metric ton of 94 - 98 octane gasoline will soon carry an excise tax of ECU 40 ($44.50).

"This will lead to a price increase on high-octane gasoline of a couple of kopecks a liter," said Igor Onansky, marketing department chief for industry analyst Psychea Scientific and Technical Center (PSTC).

The price of high-octane gasoline, burned primarily in imported vehicles owned by the well-off, is a matter of concern for a relatively wealthy few, who can afford the likes of a Volvo or Mercedes. "In part, the emphasis on high-octane fuel is an effort by the government to obtain income from the people who have money to pay tax," said Onansky. But the great majority of Ukrainians drive Zhigulis and Samaras, which chug along on lower-octane fuel. Parliament moved to protect them December 28, rejecting a government proposed 50 percent excise rate increase for low-octane gasoline.

But helping the state budget at the expense of the rich is not the only reason import rates went up on only high-octane fuel, analysts say. "What is also happening is that the government is closing down a smuggling possibility," said Association of Ukrainian Petroleum Producers Vice President Vasiliy Dumenko. "The new import duties will be more effectively enforced." But Dumenko says Ukrainian customs agents cannot currently distinguish among grades of gasoline as fuel trucks cross the borders. "Gasoline looks like gasoline to the customs officer," said Dumenko. "And that means that the importer could import high-octane, tell the customs officer it's low-octane, and put the difference in the two excise rates into his pocket."

Soon, customs agents will begin performing spot octane level checks on imported fuel, officials say. And, according to marketing expert Onanasky, then "government will receive honestly-paid money for an honestly-imported product. But, Onanasky also predicts another round of significant price increases in about a week (mid-January).