Bulgarian Industry Group: Drop in Fuel Prices Cannot Make up for Increased Labour Costs

A fall in petrol and diesel prices in Bulgaria as a result of the slump in global oil prices is not enough for the country’s businesses to cut the price of their products, according to the Bulgarian Industrial Association (BIA).

Increased wage and social insurance costs and a drop in the international prices of major Bulgarian exports weigh on Bulgarian businesses, BIA said in an article on its website in a bid to answer why local producers don’t cut the prices of their products as much as members of the public have suggested amidst the slide in oil prices.

In December 2015, the prices of the most widely used petrol grade A95 and diesel have decreased by 12.2% and 9% year-on-year respectively in Bulgaria, while the price of oil on the international markets has decreased by 43.4% over the same period.

According to BIA statistics for the middle of January 2016, petrol and diesesl prices before tax and excise in Bulgaria are among the highest in Europe (EUR 0.465 for petrol and EUR 0.473 for diesel). This is more than twice the prices in Poland and 30% higher than the prices in Germany, according to BIA.

Bulgaria also has the lowest margin (0.18%) between the minimum and maximum price ofpetrol, diesel and propane gas among 100 countries, "which mean that factors other than the market are driving fuel prices in Bulgaria", BIA said.

The EU country with the highest margin is Greece (3.46%), while France, Portugal, Belgium, Estonia, Finland and Switzerland have a margin around 2.5% or higher.

Bulgaria is among the European countries with the lowest levels of excise levied on petroleum products in the EU (EUR 0.363 for petrol and EUR 0.330 for diesel.) The retail price of a litre of lead-free petrol (EUR 0.993) puts Bulgaria in the fifth position in Europe with only Latvia, Austria, Estonia and Poland having lower prices.

With diesel price of EUR 0.963 at the pump Bulgaria ranks ninth from bottom. Spain, Latvia, Greece, Estonia, Luxembourg, Austria, Poland and Lithuania all have lower retail prices of diesel.

There are several factors behind the slow decrease in the prices of fuels in Bulgaria, according to BIC.

The price of electricity for businesses, with all taxes included, has increased by 12.8% - from BGN 141.42/MWh (H1 2015) to BGN 162.12/MWh in the second half of 2015.

Another factor is the increase in the social insurance contributions paid by employers, BIA said. The contributions are pegged to the minimum insurable income, which increased by 4.4% last year compared with 2014 and grew by 7.5% in 2016 compared with 2015.

The average wage in the country has also increased, growing by 8% year-on-year in Q3 2015.

A 25% increase of the minimum wages of farmers and tobacco producers (from BGN 240 to BGN 300) has also been a factor behind the slow decrease of prices of products made in Bulgaria, according to BIA.

An average fall of 18.9% in the prices of key Bulgarian exports such as metal ores and oil products on international markets have put additional pressure on Bulgarian businesses, BIA said.

The prices of copper ores and concentrates have fallen most, by 73%, prices of petroleum oils and products have decreased by 43-45%.

The international prices of other raw materials exported by Bulgaria such as precious metals ores, iron and refined copper, unrefined and cathode copper have decreased by more than 20%. Global grain prices have fallen by 15%.