FINAL ROUND BETWEEN SMALL AND BIG PLAYERS ON THE MARKET OF LIQUID FUELS
The domestic market of liquid fuels is quite interesting. It is among the few entirely liberalized and with a clearly formed competition. The players are divided into two main teams - the small petrol stations against the big trade chains. According to an expert research of the German marketing company GfK, there were some 2,500 filling stations in Bulgaria in the end of 2003. But their number was the same in the end of 2002 according to data of the Centre for Research of Democracy. It is hardly probable that not a single new petrol station was built in Bulgaria within a year, but it is difficult to establish how things really stand in this sector, experts claim. The reason is the half-legal status of part of the facilities. There is quite a number of filling stations, made from second-hand tanks, mounted on metal frames, with only one or two filling devices. There are also some stations which are in a continuous period of registration. The inspectors are given the explanation that all necessary documents have been filed and a permission is expected. Thus, the registration period may drag on for months on end and even years. Getting a permission for operation of a petrol station is in fact quite a long and complicated process. It is necessary to pass through at least 30 instances (municipal services, the Institute of Hygiene and Epidemiology, fire-protection service, water and sewage companies, etc.) and get a document from each of them. Well, part of the long way could be cut down by giving money under the counter, but many permissions are received after the filling station has already been constructed and is operating, people in the know comment. One way or the other, the big companies like LUKoil, Petrol, Shell, and OMV, hold a total of 26% of the petrol stations in the country. Petrol has 443 stations, LUKoil has 114, Shell and OMV have 74 and 64, respectively. The remaining players are well-known, less known and completely unknown.Control on the quality of liquid fuels along the entire chain is within the obligations of the State Agency on Metrology and Technical Supervision. Its sanctions (at least on paper) are stiff - between BGN50,000-500,000. Such a fine could be fatal to most of the small facilities. Under a PHARE project, the controlling agency intends to equip by 2005 two mobile labs, which will considerably facilitate the inspections. The agency has planned to carry out 400 inspections this year, during which some 1,200 samples of the fuels on sale will be taken.Small traders are the usual suspects regarding the quality of the offered fuel. However, they underline that the quality does not depend on the name of the petrol station, but on the conscientiousness of its owner. Maya Topalova, Director of the Liquid Fuels Control Department with the State Agency on Metrology and Technical Supervision also shares that opinion. In front of the BANKER weekly she explained that the violations did not have a specific address. Wholesale traders in Bulgaria control about 49% of the liquid fuels market. After the enforcement of the Ordinance on Liquid Fuels on October 1, 2003, a total of 100 inspections were made by the year-end and 271 samples were taken. Irregularities were established in 27 of them (i.e. 10% of the samples). The most numerous violations were found in A-92H petrol brand, which is still the most frequently used one. The lead content in it is often three times higher than admissible, experts say. While petrol is usually mixed or diluted, the most frequent violation regarding diesel oil is the higher sulphur content. In end-2003 the Liquid Fuels Control Department carried out an inspection jointly with the Interior Ministry, the results of which were six times higher than those from the individual inspections. Twelve violations were established in the inspected 20 filling stations. Small-scale traders sell at dumping prices more frequently than big chains. If the wholesale price of LUKoil Neftochim for A-92H is BGN1.14/litre, the small filling stations sell it BGN0.03/litre higher, while big petrol stations trade it at BGN1.20-1.21/litre. We have no other way to resist the competition of established chains than selling at lower prices, entrepreneurs of more modest financial power point out. In the market economy, according to them, everyone may himself set the surplus charge on the commodity he sells and any accusations of unfair competition or appeals for consolidated prices are entirely needless. Practically, in the liquid fuels trade too, those who offer good quality products at the most competitive prices, win. These are the ambitions of the Greek company Hellenic Petroleum, which will try to take firm positions on the Bulgarian market, counting on the good quality of fuel at its filling stations (entirely imported from the oil refinery in Thessaloniki) and on the lower prices. According to data of the National Statistics Institute (NSI), total consumption of oil fuels in Bulgaria for 2002 exceeded 3,400,000 tons, 78% of which was produced by the LUKoil refinery in Bourgas. Trade discounts for the distributors, however, were reduced two-fold within three years. In 2001 they were about USD300/ton, and now the discount is about USD160/ton. The reason for that is the big competition - the new chains of petrol stations do not attract new clients but redistribute the already existing market, says Hristo Tonchev, Deputy Director of retail sales in LUKoil - Bulgaria. Therefore, the tendency for the future is to rely on bigger profits from accompanying operations and services: shops, cafes, restaurants, car wash services, etc., which presently account for 13-14% of big chains' sale proceeds. In the economically developed countries the ratio between sale proceeds from fuels and accompanying operations and services at filling stations is 50:50. The trump-card, on which powerful companies stake, are the technical characteristics of their facilities, complying with all standards of the European Union (EU), including the ecology-related ones. Their stations are equipped with double-stage tanks and ventilation systems. The stations of the four big chains are also equipped with a fiscal memory electronic system, which registers the sales and transfers the data to the tax services. The introduction of an unified info system, such as the big chains possess, is an unattainable luxury for the smaller stations due to their limited financial resources. In the end of last year LUKoil - Bulgaria proposed to finance such a projects, but the idea is still under discussion. Principally, the project should have a legal framework, at that not only as an obligation to all filling stations, but as a form and method of financing. In the words of Georgios Hadzis, Executive Director of Eco Elda Bulgaria (owned by Hellenic Petroleum), the on-line connection is doubtlessly a step forward to overcoming unfair competition and restricting the grey economy in that sector. Moreover, the Greek are ready to pay for its introduction in their stations. Regarding illegal import of liquid fuels, this problem is expected to lose strength after passing the law on excise duties. It should enter into effect in the beginning of 2005 and create a system for registration and management of control in the movement of excise duties. Only after Bulgaria's accession to the EU, however, it will become clear if the small petrol stations will meet the EU criteria. Of course, if they manage to resist the pressure of big players until then.