RIGA - Gasoline prices skyrocketed during the week, reaching 1 euro per liter at pumps in Latvia and Lithuania.
With world market prices reeling from the aftermath of Hurricane Katrina, Mazeikiu Nafta, the Lithuania-based refinery, on Sept. 1 raised the wholesale price of its 95 gasoline by 10 cents to a record high of 2.95 litas (0.85 euro) per liter. The wholesale price for diesel rose to 2.79 litas per liter.
Retail operators soon followed suit, and by Sept. 5 Lukoil stations in Lithuania raised the cost of 95 octane by 3 percent to 3.44 litas (0.997 euro). Latvia's Statoil increased the price of 95 gas to 0.70 lats (0.99 euro) on Sept. 6.
Understanding the root cause of the hike, most motorists acquiesced with the price surge. Those living near Russia drove to the border to fill up their tank on the other side. By Sept. 5, the line at border checkpoints in Lithuania was over a mile long.
Government officials, fearing inflationary repercussions, looked on helplessly, though some warned fuel retailers that there would be consequences if they were caught gouging.
"The government does not possess a magic wand to lessen the consequences of a natural disaster," the Latvian prime minister's spokesman said earlier this week.
On the supply side, Eriks Ulmanis, logistics manager at Latvija Statoil, told the Baltic News Service that wholesale fuel prices had been several cents higher than retail prices for almost a week, and that several gas stations outside Riga had increased prices to almost 0.70 lat per liter.
He explained that if a liter of 95 gas costs 0.70 lat, the excise and value-added taxes constitute 0.299 lat, while 0.05 covers transportation costs, and 0.351 lat comprises the manufacturer's price.
Margrieta Akmens, a spokeswoman for Statoil, said that the company's board decided on Sept. 2 to "delay" any increase so that the government could develop a plan to cope with this situation.
"According to the market situation, the fuel price had to reach 0.74 lats per liter [on Sept. 2]," she said, which is a rise of 0.10 lat.
Still, government officials seemed reluctant to give retailers the benefit of the doubt.
The Latvian Competition Council, which is supervised by the Economy Ministry, reiterated that it was carefully monitoring how retailers increased prices on the basis of world markets. If auditors establish that retailers have manipulated fuel prices, the council will be swift to impose penalties on them, said chairman Peteris Vilks.
In the meantime, after asking EU member states to start drawing on reserves in order to relieve the pressure on supplies, Economy Ministry Krisjanis Karins pointed his finger at Mazeikiu Nafta, the Baltics' only refinery, for the extraordinary price-rise.
He explained that, so far, the competition council had not found any illegal cartel agreement among Latvian retailers, but the increase in prices was linked with the fact that roughly 80 percent of gasoline sold in Latvia comes from Mazeikiu Nafta.
On Sept. 6, he told the Baltic News Service that fuel prices were surging in all three Baltic countries despite world prices edging down the same day, thanks to the International Energy Agency's commitment to draw on 2 million barrels per day from its members.
The rise, he said, was due to Mazeikiu Nafta's monopoly in the region.
Janis Blums, director of Mazeikiu Nafta Tirdzniecibas Nams, the refinery's retail operations arm, dismissed the minister's claims, emphasizing that in Latvia there are alternative opportunities to purchase fuel in both the West and East.
"Mazeikiu Nafta has no exclusive fuel supply agreements in Latvia, so it is not correct to speak about a monopoly," he said, adding that claims that Mazeikiu Nafta has an 80 percent market share in Latvia are mistaken. "These are not our figures. There are various estimates, and it is impossible to estimate the exact size of each company's market share. And nobody has been denied the right to buy fuel from alternative suppliers."
Blums also stressed that Mazeikiu Nafta was not using the situation wherein a large portion of the fuel consumed in Latvia is bought from the Lithuanian company, since, in his words, "fuel is supplied to all companies on the same conditions and for the same price."
Still, Karins explained that diesel fuel prices were growing at a slower pace since Mazeikiu Nafta's wholesale price has to compete with cheaper diesel from Belarus. Taking into account these circumstances, the European Commission might allow Latvia to also import gasoline from Belarus, even though it does not meet the EU's quality standards, the minister said.
If fuel prices continue to rise at the present rate, Karins said, they will push up inflation in September, although experts predicted deflation in August.