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The state to put fuels market in order

Photo: BGNES

The Bulgarian state is to build and launch into exploitation at least 100 petrol stations in the big cities and on the motorways within one year. The decision of the cabinet has provoked lively and contradictory comments.

Until now, the fuels market in the country was entirely in the hands of the private business and the market has been dominated by several large international companies. Now the state is entering this business territory with an ambitious goal to make the new State Oil Company one of the key players in the retail and wholesale markets.

What lies behind these intentions and what the fuel consumers in Bulgaria expect?

There are many examples of state intervention in the trade in automotive fuels across the globe. Some examples are quite discouraging and others are better. Venezuela, which is one of the countries with biggest oil deposits, was left without petrol due to the failure of the state-owned petrol company PDVSA. Things do not look that bad in some European countries, including Hungary and the Baltic countries. However, but even there the state owns a minority share on the market.

The decision of the Bulgarian state to enter the oil business has its own logic and goals, the supporters of this idea contend. The future State Oil Company is expected to have two main functions- to sell fuels at its own petrol stations and to store fuels in its own storehouses, thus putting the wholesale and the retail market in order. 

“These intentions are positive. They are aimed at more competition, lower prices, better quality which is good for both for the market and the consumers. This strengthens confidence in the oil market. We are part of this market. So, it is better for us too”, says Andrey Delchev from the Bulgarian Petroleum and Gas Association. We should note that all large petrol and gas companies in Bulgaria are members of BPGS. According to Simo Simov, Deputy Chairman of the Management Board of the National Association of Traders, Producers, Importers and Carriers of Fuels, in the past 10 years the state did a lot to reduce the share of gray economy in the fuels business and currently we cannot speak of a monopoly on this market, but rather of dominant position of one producer. In this regard, he welcomed the idea of setting up warehouses to operate as commercial companies, because this would allow new players to enter the market.

The popular economic expert and President of the Institute for Market Economics Krassen Stanchev is much more critical to the plans of the government. “It will be a very expensive undertaking, which will not lead to the desired effect, especially in a year when the deficit in the sectors affected by the state of emergency is expected to reach nearly EUR 1.15 billion”, the expert noted. Observers in the petrol industry contend that the construction of the network of 100 petrol stations will cost between EUR 50 and 100 million depending on whether the purchased terrains are state or private property and how big the new state-owned petrol stations are.

However, Bulgaria’s Minister of Economy Emil Karanikolov and this country’s Minister of Finance Vladislav Goranov did not give a specific answer about the cost of the petrol stations, how this endeavor will be financed and what the return of the investment will be. They only explained that the authorities are not planning to build the petrol stations with money from the state budget and the state-owned oil company may resort to a loan.

The idea and the project remain controversial- the direct participants in the business with petroleum and gas products officially claim that they approve such an idea, while the economic experts from non-governmental organizations contend that the undertaking makes no sense and is doomed to failure. “The return of the state in an entirely private sector is a new phase of the state capitalism, which is no longer just wasting money, but wants to take the reigns of the economy”, their position reads.

The hopes of the end consumers that this would lead to reduction of fuel prices in Bulgaria, which are among the lowest in the EU, are likely to be unfounded. According to experts, the over-expectations of low prices are unrealistic and the state intervention may rather contribute to gradual transitions from lower to higher price levels, when market prices increase.

Time will show what will happen after a new player enters the market of automotive fuels and whether the direct participation of the state in real business makes sense or not.

English version: Kostadin Atanasov

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