OREANDA-NEWS. February 18, 2010. Moldovan market of the oil products expects big changes. Apparently, the Ministry of Finance will bring the initiative on abolition of coupons for gasoline and diesel fuel to a logical end, which means that the rules will change. Moreover, most of the oil products importers are sure that it will benefit not only the country's budget, but also the consumer, although the user still needs to get used to the new rules of the game.

Coupons for fuel are the result of the planned economy of the USSR and all acknowledge that they have become an atavism long ago. Even the successor to the Soviet Union – Russia has abolished this practice. The penultimate ex-Soviet Union country which abandoned this practice from January 1, 2010 was the Ukraine.

The coupons have “revived” in the 90's, when volatility at the markets has stimulated importers to get pre-payment for fuel (issuing coupons to the customers), thereby minimizing currency risks.

As of late January 2010, the Ministry of Finance put forward the initiative to change the rules for sales of oil products in the country. Thus, it was proposed to cancel coupons for lubricants, and to sell them only at the prices indicated on the panel of the filling stations. It was also offered to completely change the system of discounts and bonuses, provided to the large and loyal clients.

The fuss was stimulated by the discrepancies committed by analysts and journalists and explanatory note of the Ministry of Finance where it cited reasons and predicted effect of the forthcoming changes.

In particular, the Ministry of Finance noted that if the situation remains the same, possible loss of the budget on VAT in 2010 will amount in to 270 million leis. It should be emphasized that these losses are predicted if nothing is changed. (At the same time, some ascertain that these losses will be born due to introduction of the new rules, which is illogical as the Ministry of Finance is interested in replenishing the budget).

Annual retail sales of the oil products in Moldova are 450 thousand tons; 55% of which are sold for coupons. So, the coupon market exceeds 3 billion leis a year! In fact, coupons have become a so-called liquid currency. Can the state agree that a certain amount of money in the country is expressed in virtually “uncontrollable "currency"?

Moldova wants to become a EU-member which do not use such system. EU countries use various discount cards and cards, which indicate the fuel in liters. Civilized countries get used to the fact that prices for certain goods, including fuel, can rapidly change. This segment is closely linked to the world markets of oil and petroleum products.

It is very difficult to change habits and that’s why some experts were quick to criticize the initiative of the Ministry of Finance. To date, organization or company transfers money to the fuel supplier, which in exchange provides coupons with clearly specified discount and volume of fuel (volumetric). In practice, large organizations rarely transfer funds for the fuel in advance - as a rule, they pay in the end of the month. As regards the state structures, which orders pass through the Agency for public procurements, the payments are made quarterly, and post-factum.

Thereby the statements of some experts that economic agents lend the fuel companies are not true to life as small and medium businesses prefer to pay little by little and big businesses ask for significant discounts with the deferred payment.

As it was stated above, the coupon market is equal to about 3 billion leis. From the standpoint of the state, due to this, annual loss of the budget on VAT is about 270 million leis - the calculation is based on the seven main Moldovan oil products importers.

It is no secret that at the certain stations the discounts, if you pay in cash for a certain amount, can reach 10% of the cost indicated on the panels. Someone knows about it and someone pays the indicated price. Discounts on fuel when sold for coupons reach 5-7% of the retail price indicated on the panel. The so-called “agreed discounts” explain the fact that practically all stations indicate the same price for fuel. The real competition and fight for the customer actually take place in the offices, where buyers bargain discount for the coupons and method of payment (cash/or cashless payment).

The overturn of the market alleged by the Ministry of Finance, will force all gas stations to respect the same rules. At the same time, it does not mean that large consumers will suddenly lose their discounts.

The coupons will be cancelled and the scheme of encouraging customers will change. The company will conclude an agreement which provide certain discount, under condition that the company will consume a certain amount of fuel. For example, 1% discount for 5000 liters of fuel, 2% for 10000 liters, 3% for 15000 liters, etc. Some experts, following the experience of European countries, claim that the discount will not exceed 3-4% because maximum extra charge on this type of product is not more than 10%.

After concluding the agreement, the company receives a personal card and refuels at the retail price. At the end of the month, oil importer, while assessing the progress of the contract, refill the customer card with an amount equal to the discount provided. Thus, having spent 10000 leis for fuel, the customer will receive a bonus of 300 leis. Discount will be accrued at the expense of the fuel company’s profit that is well monitored in terms of taxation.

In addition, in terms of growing competition the station itself will raise the level of the customer service: will clean glasses during refueling, may present air freshener, or can provide a free car wash. Thus, the client will only benefit.

Some experts criticized the decision of the Ministry of Finance in terms of the fact that this innovation will benefit large market players and small gas stations will suffer. Today there are 592 filling stations in the country. Most of them are owned by seven largest importers of oil products. 231 gas stations belong to the small business - those who own from one to four gas stations. Thus the small companies take 40% of the market. As they are small, they have lower administrative costs. In Europe and the U.S., half of the existing stations pass from the possession of large to small, family business. This is due to the fact that the large companies are not very interested in this business due to the high administrative costs.

The press also cited statements of transport companies that removal of coupon system would hurt their business. They complain that abolition of coupons will lead to abolition of discounts. At the same time discounts will not disappear (the form of discounts received will be decided by each company separately). At the same time, there is another important aspect which will benefit the transportation business.

Main fuel suppliers plan to issue cards with clear binding to a specific vehicle. This means that a driver with this card can not fill, for example, his personal car.

Transport workers say that the new system will force them to create their own stations, so they can purchase fuel for their cars at the wholesale prices. They also argue that the cost of fuel at the filling stations would be higher than if they bought coupons.

The main objective of changes proposed by the Ministry of Finance is to erase difference in prices on panels and in coupons. The discounts will be also provided in future but the mechanism will be different. One of the options was mentioned above, but each company decides for itself the best way to keep its consumers.

Ultimately, the Ministry of Finance only wants to ensure that all bonuses and discount of the fuel companies are open and transparent, including those provided at the expense of their profit. In other words, the talk is about the monetization of the oil products market: using cash instead of the coupons.

As the competition will take place at the panels, the prices will be changed more frequently than now and will directly depend on the purchase of the certain party of fuel. As a result the client will be attracted both by the price and service.

The coupon is a form of discount which should stimulate and attract the customer. If the form changes, the fight of the fuel companies for the client will not weaken, on the contrary - there is a high probability that it will strengthen, so the client will only win.