CMTU proposes measures to manage fuel prices

The Confederation of Mongolian Trade Unions (CMTU) has proposed several mechanisms in which the government can maintain and manage fuel prices. As a member of the Fuel Pricing Committee, the CMTU believes that the price fluctuations for the most used fuels such as AI-92 and diesel can be offset through certain incentives and mechanisms.

The Mineral Resources and Petroleum Authority of Mongolia (MRPAM) said that Rosneft increasing fuel export prices to Mongolia and a depreciating tugrug have resulted in a 60 to 100 MNT increase in fuel rates by importers. As the exchange rate of the tugrug against the dollar reached 2,568 MNT and Rosneft increased its fuel export prices by 45 to 85 USD, the combined effect of the two has increased prices on all types of fuel. The CMTU believes that Cabinet is maintaining the same position on the issue as MRPAM and believes that authorities will not take action to decrease prices.

Vice President of the CMTU S.Erdenebat said that the likely inaction by authorities is what inspired the confederation to propose certain actions that could be taken. One of the proposed measures includes an overhaul of the excise tax on fuel to influence prices. For instance, the CMTU has proposed that since 60 percent of all fuel used in the country is diesel and AI-92 gasoline accounts for 32 percent, fuel importers could maintain lower prices for these fuels by offsetting any losses with profit from bulk sales to mining companies and other businesses.

In addition, the CMTU said since the exchange rate is a large factor in the price increases, Mongol Bank should sell more US dollars to fuel importers. According to their statement, the confederation said that the central bank is not selling any US dollars to fuel importers, causing them to purchase dollars at higher prices from other sources.

Moving forward, the confederation also recommended establishing a risk fund to accumulate a reserve of fuel when global oil prices are low. The CMTU cautioned that if Cabinet does not heed their advice, we could see further price increases and even a fuel scarcity in the future.

Meanwhile, many have called into question the validity of the recommendations of the CMTU. Cabinet has already reduced the excise tax on fuel to zero on almost all fuels, therefore any measures regarding the excise tax will be mostly ineffective. Concurrently, forcing private businesses, fuel importers in this case, to take on losses has little legal backing even if fuel is a strategic product. Past experience has shown that the Fuel Pricing committee has little to no say in determining fuel prices. Therefore, any attempts to forcefully maintain prices are likely to backfire.

As such, in the long-term, Mongolia must rely on its own petroleum resources. There is no good reason for a country that has a reasonably large indicated petroleum reserve to rely on foreign imports. In that sense, projects such as the oil refinery being financed with a one billion USD credit line from India are critical for Mongolia’s economic and energy independence.