Giorgi Vashadze: “The price of fuel is GEL 1.65 when arriving at the border but almost doubles within the country.”

Verdict: FactCheck concludes that Giorgi Vashadze’s statement is TRUE.

Giorgi Vashadze presented accurate figures. Whilst the prices of regular and premium gasoline at the border of Georgia are indeed GEL 1.49 and GEL 1.68, respectively, as of the month of February, the sales prices are almost twice as high, around GEL 2.95-3.0 and GEL 3.05-3.15, respectively.[1] The difference between the import price and the selling price constitutes approximately GEL 1.5, further consistent with the claimed figures.

The first assertion regarding the increased taxed on fuel is accurate as the excise tax on fuel has indeed doubled since 1 January 2017, surging from GEL 250 to GEL 500 per tonne, driving the gasoline prices further up by GEL 0.20-0.25.

However, regarding the latter part of the claim, FactCheck refrains from independently evaluating the level of competition in the market and the potential influence of non-market forces on price formation as indicated by the MP. However, we acknowledge that the Competition Agency investigated (also suggested by the MP) the possibility of price collusion in the fuel market, leading to fines totalling GEL 55 million against oil companies. Subsequently, the aforementioned decisions were challenged in court by the oil companies. Following the court’s ruling against the Competition Agency, it initiated a re-examination of the oil market, leading to a significant reduction in the total fine to GEL 3 million but still referencing to the existence of price collusion for a relatively shorter period of time.

FactCheck refrains from making claims regarding the potential presence of corruption or assessing the aforementioned aspect of the statement; furthermore, this particular segment of the statement will not be considered in determining the verdict.

Given the above factors, FactCheck concludes that Giorgi Vashadze’s statement is TRUE.

Analysis

Giorgi Vashadze, the leader of the Strategy Aghmashenebeli political party, claimed when discussing the prices of fuel in Georgia: “I would like to ask a question to Irakli Kobakhidze, the Prime Minister of our country. Where does GEL 1.5 from each litre of gasoline go?! The price of oil, gasoline in this case, is GEL 1.65, however, the same situation applies to diesel when arriving at the border. The price of fuel almost doubles within the country.” The claim refers to the “excessive” surges in the price of fuel within the country which is driven by the increased tax, on the one hand, and the non-competitiveness of the market on the other hand, according to the MP.

Regular and premium gasoline, as well as various brands of diesel fuel, are prevalent in the Georgian market. Notably, gasoline from certain brands is sold with various fuel additives and under different names (including G-Force, Eko, Nano, Efic, Ecto), typically at slightly higher prices.

Graph 1: Current Retail Fuel Prices on the Dashboard for Identical Brands of Fuel with Different Characteristics

Source: https://www.sgp.ge/ge/price; https://my.wissol.ge/public/fuelprices; https://gulf.ge/ge/fuel_prices

Although the same brands of imported fuel are registered under one commodity code at the border, the differentiation is only due to the types of fuel (diesel, gasoline) and the octane rating (less than 95 for regular, more than 95 but less than 98 for premium and more than 96 for super) in contrast to the various names available in the retail market. For instance, all regular brand name fuels fall under the commodity code of 2710 12 410 00 (gasoline for engines with an octane number of less than 95). Statistical information regarding imported fuel is available on the website of the Ministry of Finance with data for February 2024 published as of writing this article.

Graph 2: Weighted Price of Gasoline of Different Brands at the Border (without Taxes), February 2024[2]

Source: Ministry of Finance of Georgia

For a comprehensive understanding, it is important to clarify that the import price or the price at the border encompasses all costs associated with fuel purchase and transportation to the border of Georgia. The aforementioned prices of GEL 1.49 for regular and GEL 1.68 for premium reflect the prices at the border. FactCheck relies on data from the Ministry of Finance and does not possess information regarding the price increases from the initial purchase to the border of Georgia, the number of intermediaries involved in the process and the degree to which the aforementioned volume of the price at the border is impacted by artificial price increases.

Moreover, taxes imposed by the government (excise and VAT), along with the company’s operating expenses (transportation within the country, employee salaries, income, profit and property taxes, advertising expenses, etc.) and the company’s profits, are added to the import price (price at the border).

The excise tax on gasoline is GEL 500 per tonne (1,000 kg), suggesting an average price of GEL 0.37 per one litre as one kilogram of gasoline is equal to roughly 1.35 litres. The VAT rate is 18% and is calculated from the total value of the price at the border and the excise tax. For example, if the import price is GEL 1.68 and the excise tax constituted GEL 0.37, VAT will be GEL 0.369 [(1.68+0.37)*0.18=2.05*0.18=0.369]. The determinants of the sales prices of gasoline, as indicated on dashboards, are outlined in the graph below.

Graph 3: Aspects of the Retail Price of Gasoline

Source: Ministry of Finance of Georgia, calculations by the author, https://my.wissol.ge/public/fuelprices

The figures highlighted by the MP are consistent with the reality[3] as depicted on the graph above and the retail sale price of gasoline does indeed almost double as compared to the price at the border with a difference of approximately GEL 1.5 as of February. Furthermore, the calculations utilise the standard prices of leading brands in the market (dashboard price without discounts) as these companies hold a significant market share and account for the majority of fuel sales. However, relatively smaller chains and non-brand gas stations exist alongside market-leading companies, with lower dashboard prices, leading to smaller variance between the customs price (price at the border) and the sales price. Furthermore, larger chains similarly sell at prices lower than what is indicated on dashboards through various channels such as corporate sales, discount/loyalty programmes, non-branded segment sales and self-service stations. The realised sale price is considerably lower in all aforementioned cases, thus reducing the difference between the import and sale price.

Regarding the segment of the MP’s statement, inquiring where the aforementioned GEL 1.5 goes, it should be noted that companies allocate GEL 0.70-0.75 per litre of fuel to the state budget in the form of VAT and excise taxes whilst the remaining portion covers the operational expenditure and generates profit. The exact breakdown of how much is allocated to covering expenses as compared to the amount kept as profit cannot be precisely evaluated within the scope of this article.

The underlying sentiment of the claim and the MP’s initial assertion regarding the surge in fuel taxes are accurate; specifically, the excise tax on gasoline has indeed doubled from 1 January 2017, increasing from GEL 250 to GEL 500 per tonne, leading to a rise in fuel prices by approximately GEL 0.20-0.25.

Regarding the latter part of the statement, FactCheck cannot independently evaluate the level of competition in the market and the potential influence of non-market forces on price formation as indicated by the MP. However, we acknowledge that the Competition Agency indeed investigated (also suggested by the MP) the possibility of price collusion in the fuel market, leading to fines totalling GEL 55 million against oil companies. Subsequently, the aforementioned decisions were challenged in court by the oil companies. Following the court’s ruling against the Competition Agency, it initiated a re-examination of the oil market, leading to a significant reduction in the total fine to GEL 3 million but still referencing to the existence of price collusion for a relatively shorter period of time. Thus, the questions raised by the MP, regarding the fact that certain concerns exist even within a state agency about the competitiveness of the fuel sales market, is accurate.