Is it necessary to (re)establish a fuel price control system in Bosnia and Herzegovina?

By Boris Vukušić

Government authorities across the globe are confronted with periodically public pressure due to relatively high automotive fuel prices. Recent events in France (“yellow vests” protests) have shown that the price of fuel has become a sensitive national issue since it has a significant impact on the citizens’ standard of living. Canada and Australia and some of the EU member states (Austria, Belgium, Luxembourg, Malta and Slovenia) have temporarily or permanently implemented fuel price control systems, while the intervention of state authorities in certain countries (China, Israel, Algeria, Indonesia, Malaysia, Bolivia, South Africa, etc.) maintains a permanent control of fuel prices.

While prices of significant amounts of consumer goods do not fluctuate frequently and significantly, this is not the case with fuels – the fuel price fluctuates on a daily, weekly or monthly basis and that makes consumers feel economically vulnerable and uncertain about their future. Consequently, some of the key reasons for controlling the price of fuels are the economic protection of consumers from unreasonably high prices, as well as in ensuring the equal competitiveness of companies operating within national economies, which ultimately prevents the emergence of oligopoly and monopoly. According to certain scientific papers1 the Austrian fuel pricing control model showed a double impact: stabilized fuel prices and made more difficult the practice of collusion at the expense of consumers. In order to understand that the fuel price control is a serious issue, it is necessary to bear in mind that the German fuel market was subjected to a thorough examination in 2011 by the Federal Cartel Office under the charge of creating oligopolies through a distributors tacit negotiating about the fuel prices. The practice of the distributor that was taken as the main proof of the existence of the oligopoly is that the changes in fuel prices by the largest distributors, automatically and in a very short time, followed by raising prices by all other, smaller participants in the distribution of fuels, with minor price differences.2

The harmfulness of oligopoly and monopoly has long been known in scientific circles and it was noted that the cooperation of oligopolistic companies, regardless of possible technological progress, is considered as extremely harmful for the society.3 With the Sherman's Antitrust Act of 1890 and Clayton's law of 1914, the protection of consumers from the tacit agreement of the oligopolist-and monopolists came to the forefront of the US state policies. However, it should be made clear that control of the price of fuels is not possible only by introducing a set of economic measures, as a primary instrument. The primary instrument, in fact, must be an adequate legal framework which is accompanied by economic measures. When it comes to price control, there are two ways in which state authorities control the prices of fuels: that is by determining the price ceiling or by establishing a fixed price.4

In the EU communitarian legislation, rules of the market competition have been established primarily by the Treaty on the Functioning of the European Union (TFEU).5 Concerning secret bargaining and cartels Article 101. TFEU stipulates that "(...) are prohibited: all agreements between undertakings, the decisions of the association of undertakings and concerted action which may affect trade between the States Member States and which have as their object or effect the prevention, restriction or distortion of competition in the internal market, and in particular those which: (a) directly or indirectly determine purchase or selling prices or other trading conditions and perform a division of the market or source of supply.”6 Article 102. TFEU introduces more precise definition and stipulates that "Any abuse of a dominant position by one or more undertakings on the internal market or a substantial part of it is prohibited, which, inter alia, consists of "(…) direct or indirect imposition unfair buying or selling prices or other unfair trading conditions" is forbidden.7

Recognizing the legal and economic postulates, Bosnia and Herzegovina (BiH) did not make successfully the necessary transitional economic and political reforms, nor did it choose one of the three economic models.8 In this context, a socially responsible business is a mechanism that did not exist on the Bosnian fuel market. Regarding the fuel prices, BiH has a free pricing system in effect, which means that the distributors determine the prices of fuels arbitrarily and without state interference. The situation with the fuel price forming seems to be very similar to the one described in Germany and there is enough room for justified doubt about the existence of a clear form of oligopoly on the fuel market, which has an ultimately harmful effect on the general development of BiH. Much more disturbing, there is no practical evidence about existence of the antitrust protection system in BiH which can effectively protect consumers. In addition, it is necessary to add that there is no strategy within the country that treats oil and oil derivatives (fuels) as a strategic raw materials, in addition to the fact that the fuel terminals of BiH in the port of Ploče (Republic of Croatia) that should function as a warehouse of regular and emergency the stock of petroleum products, due to the reasons of a political nature is for a long time out of full function.

In legal terms, the governments in both BiH entities9 at their disposal have laws on price control which can be enforced in order to regulate the prices of fuels.10 In the Federation of Bosnia and Herzegovina and Republika Srpska possibility of fuel price control was last used in 2000. When retail fuel prices were temporarily fixed. The prices of fuels in BiH are heavily burdened with fiscal and parafiscal tax levies.11 In addition to the aforementioned, an additional problem that influences the price of fuels significantly is that there is no legally determined maximum of retail margin in the market for fuels. An ultimate consequence of absence of the legal determined retail margin is the uncontrolled and unjustified increase of the fuel price that is borne solely by end-users e.g. consumers. At the same time, the distributors of fuels are left with wide maneuvering space for making of extra profit and therefore their business cannot be considered as socially responsible. Such completely uncontrolled profit maximization is made possible by weak or ineffective state control mechanisms. In addition to the aforementioned price control laws, an important law that is available to state authorities in controlling the price of fuels and preventing oligopolistic activities is the Competition Law in BiH12 , which, as a powerful instrument in the investigation and sanctioning of the potential oligopoly in the fuel market in BiH, should be used by the entity governments and the Council of Competition of BiH. From the presented facts, it can be reasonably concluded that there is an urgent need to reintroduce the fuel prices control in BiH. In doing so, it is necessary to activate all existing legal instruments and certainly create new ones that are adapted to the EU's communitarian legislation, primarily in order to prevent the formation and existence of oligopolies on the fuel market. The ultimate goals are the economic improvement of the state and future welfare of the society in the sense of creating economic certainty for individuals.

Disclaimer: The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of the Balkan Studies Centre (BSC).

 

BIBLIOGRPAHY

1Dewenter, R., Heimeshoff, U., Less Pain at the Pump?  The Effects of Regulatory Interventions in Retail Gasoline Markets, Heinrich‐Heine‐Universität Düsseldorf, Department of Economics, Düsseldorf, Institute for Competition Economics (DICE), Düsseldorf, Germany, p.15 Access on 13.12.2018. via: http://www.dice.hhu.de/fileadmin/..../051_Dewenter_Heimeshoff.pdf.
2 Haucap, J., Müller, H.C., The Effects of Gasoline Price Regulations: Experimental Evidence, Heinrich‐Heine‐Universität Düsseldorf, Department of Economics, Düsseldorf, Institute for Competition Economics (DICE), Düsseldorf, Germany, p.2  Access on 14.12.2018. via: http://www.dice.hhu.de/fileadmin/redaktion/Fakultaeten/Wirtschaftswi ssenschaftliche_Fakultaet/DICE/ Discussion_Paper/047_Haucap_Mueller_2.pdf  (14.12.2018.)
3 George, P., The Emergence of industrial America: Strategical Factors in American Growth since 1870., State University of New York Press, 1982., p.172
4 See more: https://www.globalpetrolprices.com/articles/42/ (Access on 14.12.2018.)
5 Art. 101-109 TFEU
6 Art.101 (1) a. and c. TFEU
7 Art. 102 (2) a. TFEU
8 Neoliberalism or social democracy or a third-way policy that represents a hybrid of a neo-liberal doctrine and a state of well-being that is specific to social democracy.
9 Iti is about the competent entity ministries of commerce.
10 The Law on Control of Prices of the Federation of Bosnia and Herzegovina (Official Gazette FBiH 2/95), The Law on Amendments to the Price Control Act (Official Gazette of FBiH 70/08), The Law on Price Regulation of the Republic of Srpska (Official Gazette of the Republic of Srpska 106/2009)
11 Dependent costs include, among others, wholesale supplier and transport costs. There are, on the other side, fiscal and parafiscal taxes that include customs, excise duties, VAT, road charges and others.
12 The Law on Competition in Bosnia and Herzegovina (Official Gazette of BiH 48/05), The Law on Amendments to the Law on Competition in Bosnia and Herzegovina (Official Gazette of BiH 76/07) and The Law on Amendments to the Law on Competition in Bosnia and Herzegovina (Official Gazette of BiH 80/09).