On 16 December 2014, as a guest of the talk show, Reaction,

the Minister of Finance of Georgia, Nodar Khaduri, spoke about the devaluation of GEL and the risk of an increase in product prices. According to the Minister, different branches of the government make coordinated efforts to prevent the increase in product prices as GEL keeps devaluating. Mr Khaduri considers the government’s efforts efficient. He brought up the decrease in petrol prices on the local market as an example and noted that since October 2012, the local market price on petrol has decreased by GEL 0.25 despite the devaluation of GEL.

We took interest in the accuracy of Mr Khaduri’s statement.

Georgia’s currency, GEL, has been devaluating

since November 2014. Overall, GEL has devaluated by approximately GEL 0.20.

According to Platt’s,^[1]

oil prices on the world market have been going down since the second half of July 2014. In parallel with the cheapening of oil products, local market petrol prices are also decreasing. It is noteworthy that the lowest price for oil products on the international market was recorded in December 2014. More precisely, on 1 December, a ton of A-92 type petrol amounted to USD 654 on Platt’s whilst on 30 December, the price of this type of petrol cheapened by USD 153 and equalled USD 501. To compare, the Regular type of petrol cost GEL 1.93 on 4-6 December 2014 whilst the price went down by the end of month and amounted to GEL 1.83. As can be seen, the Regular type of petrol cheapened by 36% on the world market whereas the decrease in price on the Georgian market amounted to only 5.2%.

It is noteworthy that other additional factors determine petrol prices as well. Such factors are no less important than the cost determined by trade on the international market. For instance, Value Added Tax (VAT), excise duty, transportation, distribution to local branches, salaries of staff and various expenditures of companies are factors that international prices cannot affect.

To illustrate the dynamics of petrol prices on the Georgian market, it is necessary to compare the local and international market prices for December 2012 and December 2014. According to Platt’s, at the end of 2012, the price for a ton of A-92 type petrol was USD 986 whilst in the same period of 2014 it was USD 501.

To calculate the approximate price of petrol before sale on the local market, we should consider the exchange rates in December 2012 and December 2014 in the process of calculation. At the end of 2012 the USD exchange rate was 1.6567 whilst at the end of 2014 it equalled 1.8636. It is noteworthy that a ton of A-92 type of petrol equals 1,376 litres.

Table 1: 

Petrol Pricing

December of	Price of 1L. in USD	GEL Exchange Rate	Price of 1L. in GEL	Excise Duty	VAT and Other Expenditures	Cost	Selling Price
2012	0.716	1.6567	1.19	0.29	0.52	2.00	2.05
2014	0.364	1.8636	0.68	0.29	0.52	1.49	1.83

As we can see, the estimated cost of one litre (1L.) of petrol in December 2012 was GEL 2 whilst its selling price at petrol stations in Georgia was GEL 2.03-2.05.

In December 2014, the estimated cost of one litre of the Regular type of petrol amounted to GEL 1.49 whilst on 28 December 2014 the cost of the Regular type of petrol at local petrol stations was GEL 1.83. The price of Regular has decreased by GEL 0.13 more as of 18 January 2015. As the table shows, despite the trend for decreasing prices, the firms selling petrol received much more profit for a litre of petrol in 2014 as compared to 2012. In December 2012, the profit for a litre of Regular was nearly GEL 0.05. It is noteworthy that it takes two weeks for the local prices on petrol to decrease after the price on Platt’s goes down. This is the time required for the petrol bought at the new price to end up on the retail market. Therefore, we should observe the January 2015 retail prices for petrol which decreased in their prices on Platt’s in December 2014. The result is that the Euro-Regular type of petrol that costs 1.49 is being sold for 1.69 which makes for a profit margin of GEL 0.20.

Conclusion

Petrol prices indeed decreased by GEL 0.25 as compared to December 2012. In the same period, the prices on oil products on the international market halved. It is noteworthy that since the 2012 Parliamentary elections, the Government of Georgia has not decreased VAT or excise duty. Therefore, governmental policy has not affected the decrease in the petrol prices by any means. Moreover, since the Georgian Dream coalition came into power, prices on the local market have both decreased and increased multiple times in accordance with the prices defined by the international market.

If GEL had not devaluated, the price on petrol would have been lower than it is now. Apart from the prices on the international market, excise duty, VAT and various expenditures made by companies engaged play an important role in defining the price of petrol. This is exactly one of the reasons why the prices of petrol have not decreased to the same extent in Georgia as they have in the world. It should also be noted that the profit margin of the selling companies has increased as compared to 2012. Not only the cost but also demand and market competition define the price of petrol. In a competitive market, if the profit margin increases, companies reduce the prices on petrol. Therefore, the Government of Georgia, as noted above, has not affected the petrol price by any means.

Based upon the existing data analysis, the context of Mr Khaduri’s statement cannot be considered true. Therefore, FactCheck concludes that the statement of the Minister of Finance is FALSE.