The fuel distribution market is unhealthy and has an oligopolistic market structure and an inflexible price mechanism, a recent report by the Competition Authority has disclosed.

Although the Energy Market Regulatory Authority (EPDK) has issued licenses to 47 companies, five of the companies enjoy a total market share of 90 percent, the Fuel Sector Report released yesterday noted, adding that poor competition conditions have not changed in quite a long time. The report cited this issue as the most significant problem facing the sector.

The report also touched on problems in market prices. Taxes are undoubtedly the largest factor in Turkey's high fuel prices, the report stated. However, even when taxes are excluded, prices are still much higher than those in nearby markets. The report also described the sector's faulty approach to pricing, saying that since the free price system was launched in 2005 in an attempt to liberalize the fuel distribution market, companies have failed to show the same sensitivity in reflecting drops in fuel costs on the prices they charge at the pump as they do in reflecting cost increases.

The report was posted on the Competition Board's Web site and was also sent to parliamentary commissions on industry, commerce, energy, natural resources and information technology, the Prime Ministry, several economy-related ministries, the EPDK, the Turkish Union of Chambers and Commodity Exchanges (TOBB) and several other business organizations.

The report pointed to the vertical commercial agreements of distribution companies with other business groups including gas stations as the main cause of the failure to attain a functional free price system and price competitiveness in the market. As part of such agreements, the distributor may ask its dealers to offer extra promotions to market its goods, indirectly swelling gas prices. Another anomaly damaging price competitiveness and contributing to oligopoly, the report underlined, are structural problems arising from deficient legal regulations.

The report discussed the requirement for a minimum annual sale of 60,000 tons, a condition energy market regulations oblige companies to meet in order to retain their licenses. This barrier has to be removed because it blocks free entry into the market and adversely affects free competition, the report emphasized.

According to the report, in order to ensure the creation of healthy and permanent competition in the market, legal barriers must be eliminated beforehand.

It also pointed to the hazard posed by setting a ceiling price, saying distribution companies and dealers are prone to setting these maximum price limits as their sale prices.

Furthermore, the report said a system of "free dealership" has to be introduced, in which gas stations will be able to market the products of any company they wish. When Oil Market Law No. 5015 was introduced in 2005, free dealership was abandoned as a measure to prevent fuel smuggling, the report mentioned. It said today there are strict barriers against smuggling in the market, such as applying chemical markers to fuel to confirm its authenticity and conducting frequent inspections, which render the barrier before free dealership obsolete. Besides, smuggling still continues despite all measures, so banning free dealership has not proven to be a valid solution, the report said, insisting that this situation be reformed.

Source: Today's Zaman With Wired - Ankara