Step back to bicycles?

Fuel prices in Latvia to reach European levels in 2002

RIGA - Motorists in Latvia are thinking twice before filling up their fuel tanks to the brim with gasoline because of the increased prices over the last two years. Now there is talk of raising the prices even further.

Uldis Sakne, president of the Latvian fuel retailers association, said prices on fuel in Latvia will reach European levels in 2002, if the Cabinet of Ministers adopts the draft on fuel quality.

"Only fuel produced in Europe that meets quality standards will be sold in Latvia as of 2002," Sakne said.

The Cabinet of Ministers approved the new regulations for evaluating the adequacy of gasoline and diesel fuel on Aug. 7.

Haims Kogans, president of Russian fuel company LUKoil Baltija, said that there is no good system for evaluating the quality of fuel in Latvia today, and that to implement one could bring the prices up.

"Fuel in Latvia is not too cheap. Still, I don't know what price would be optimal," Kogans said.

Sakne said Eastern fuel has a lower quality compared to the Western, and therefore there is a chance Russian fuel import will be cut off effective Jan. 1, 2002.

"This will happen only if Russia doesn't reach European standards by 2002," Sakne said. "The Russian enterprises and their branches on the Latvian market have already expressed their dissatisfaction. In their opinion, it is negative that export will be cut off."

Talis Straume, director of the road transport department in the Ministry of Transport, said it would be logical to create a system for controlling fuel quality using money flowing into the state budget from fuel excise tax.

"The current price level [on fuel] is already severely influencing the economy and households," Straume said.

Excise tax on fuel in Latvia is divided into two portions. One half goes to the state consolidated budget to cover some of its expenditures, and the other half goes to the state road fund. There are four main items the road fund supports: maintenance, rehabilitation and development of the state road network; donations to municipalities for maintaining their roads; donations to passenger bus transportation and finally, compensation to railway companies which are consuming a huge amount of fuel.

Baiba Rubess, managing director of Statoil Latvia, said fuel prices in Latvia are cheaper compared to the rest of Europe.

"However, compared to the buying power of the average consumer, prices are exorbitantly higher," Rubess said.

Rubess said Statoil Latvia has seen driving decrease in Latvia over the last years.

"People are driving less, because they cannot afford as much gasoline as, for instance, last summer," Rubess said. "There's no question that people are wiser in spending their money on fuel. We have gas stations swimming in change."

Latvian politicians are eager to show EU they are interested in working hard on joining as soon as possible, but the debate on what will happen to Latvian agriculture in terms of rising costs is missing.

"The rural areas will be harder hit," Rubess said. "They cannot afford fuel already as it is."

Janis Rozentals, vice-chairman of the Latvian farmers federation, said fuel prices are higher in Latvia compared to Estonia and Lithuania.

"This is bringing the overall quality on our finished agriculture products down," Rozentals said.

Rozentals said that if the fuel prices go up in 2002, further problems will considerably affect Latvian agriculture.

"A great deal of machinery used is from Russia and Belarus and does not require high quality fuel," Rozentals said.

Yevgeny Tihonov, head of the trade division for the Russian Embassy in Latvia, said he thinks the decisions to increase the prices on fuel in Latvia and cut off the Russian import will be only temporary.

"Latvia is very interested in Russian fuel," Tihonov said.

Sakne said the problem is that Latvia has adopted ISO standards, and Russia is clinging on to old GOST standards.

"If LUKoil, the leading Russian fuel exporter to Latvia, is concerned about this, we can assume they won't reach European standards in 2002," Sakne said.

Tihonov said Latvia is the number one importer of Russian fuel, and that in 1997 Latvia was second after Great Britain.

"Over the first five months of this year, according to Russian statistics, Latvia has imported $548.8 million worth of gasoline. In Latvian statistics, it says only $137 million," Tihonov said.

Sakne said the business risk for enterprises is very high and has huge financial implications.

"You can bring fuel here and find yourself in a situation where you cannot sell it because of the different standards," Sakne said.