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Is it Time to Reconsider the Regulation on Maximum Fuel Prices?

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The regulation was adopted back in February 2022. The Secretary-General of the Association of Oil Companies of Serbia, Tomislav Mićović, says that measures such as the regulation limiting the prices of oil derivatives are effective only if they are short-term.

Most drivers probably face a dilemma every Thursday: go to the gas station and fill up the tank or take a risk and wait until Friday when new fuel prices might be announced, hoping for a slight decrease. This will be the case for at least another six months as the Serbian government extended the validity of the regulation limiting the prices of oil derivatives for another half-year last week.

The Regulation on limiting the prices of oil derivatives was adopted by the Government of Serbia on February 10, 2022, with the aim of preserving the standard of living for the population in the face of the global energy crisis, which led to a significant increase in fuel prices, simultaneously causing an increase in the prices of all other goods and services. Since then, authorities determine and announce the maximum allowed prices for Euro Diesel and Euro Premium BMB95 every Friday.

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Since then, those involved in fuel sales have been saying that the Regulation is not a good solution.

Arguments for abolition

The Secretary-General of the Association of Oil Companies of Serbia, Tomislav Mićović, told ‘Danas’ that measures like the regulation limiting the prices of oil derivatives are effective only if they are short-term, meaning if market trading principles are not suspended for an extended period.

“It makes sense to introduce such measures to prevent significant disruptions in the market created by the global energy crisis because that is not in anyone’s interest. Such a measure is useful when the crisis started, and many other countries, not just Serbia, introduced it,” explains Mićović.

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On the other hand, the absence of market-driven fuel pricing in the long term, which has been the case in Serbia for almost two years, has its toll, emphasizes Mićović. As a result, a number of gas station owners in our country have been forced to close their facilities.

Administrative measures are not good

Economist Milan R. Kovačević emphasizes that no administrative measure restricting prices is good and that it is much better for market conditions to determine pricing policies.

“When the measure of limiting the maximum fuel prices in Serbia was introduced, it was expected that prices would start to fall more quickly, which was not the case. In this way, the implemented measure had no effect in suppressing inflation. It is time for the government to abolish the regulation that prescribes limiting retail fuel prices and replace it with other measures to protect the livelihoods of citizens in times of economic crisis,” believes Kovačević.

The President of the Consumer Protection Movement of Serbia, Petar Bogosavljević, also believes that the regulation limiting maximum fuel prices should be abolished. However, he adds that it is also necessary to reduce excise taxes and other levies on fuel prices imposed by the state to fill the budget.

How is the price formed?

The formula used to calculate the maximum allowable retail prices does not depend on the price of crude oil on the world markets. Instead, it takes as a reference the prices of oil derivatives on the designated regional exchange in Genoa at the Lavera port. The parameter considered is the quotations (last traded prices) on that exchange, from which the fuel that is sold at gas stations in Serbia does not typically originate.

To the prices of derivatives offered in Genoa, the following costs are added: transportation costs, $45 per ton for gasoline, and $64 per ton for Eurodiesel, as well as the exchange rate of the dollar to the dinar.

The government in Serbia justified such a method of determining retail fuel prices by stating that oil companies operating in our country, during crisis conditions when the maximum price of gasoline and diesel is restricted, should be allowed to make a profit.

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