Fuel companies Shunkhlai Trading, Magnai Trade, Petrostar, and NIC were “ordered” by the Authority for Fair Competition and Consumer Protection (AFCCP) to lower their fuel prices by February 7 after they had increased prices by 80 MNT to 150 MNT per liter.
The investigation is being headed by the Mineral Resource Authority of Mongolia (MRAM) and the AFCCP. A working group tasked with researching reasons behind the price hike was been established by the agencies earlier this week. Fuel importers Petrovis and Shunkhlai have raised their prices by 100 MNT to 150 MNT per liter in rural areas, and by 80 MNT to 100 MNT in Ulaanbaatar.
The Cabinet took measures to stabilize the price of fuel in the face of depreciating MNT and the rise in price of petroleum. On January 25, the Cabinet made the decision to lower the import tax on petroleum products to keep the prices stable. Authorities highlighted at the time that the decision would prevent sudden price increases. The rate for a ton of fuel was 520,000 MNT in February 2016, and became 70,000 MNT in February 2017.
The AFCCP criticized the four fuel companies for raising their prices without consultation and at a time when they have tax breaks on fuel imports. Theagency stated that the price hikes could potentially be illegal and in conflict with the relevant concerning laws.
The Ministry of Mining and Heavy Industry has explained that the increase in fuel price in the international market had an effect on domestic prices. The price of fuel imports increased by 41 USD to 60 USD in January 2017, compared to December 2016.
In 2016, Mongolia imported 1.2 million tons of petroleum, with Russian imports accounting for 94 percent of total imports. Rosneft, a Russian state owned petroleum company, supplies the largest share of petroleum to Mongolia, 800,000 tons. Therefore, any changes in the market prices of Russian petroleum directly impacts prices in Mongolia, according to experts.
The Organization of the Petroleum Exporting Countries (OPEC), which Russia is a member of, agreed to cut production rates to increase market prices. OPEC countries agreed to lower production by 1.2 million barrels in the first six months of 2017 and non-OPEC countries agreed to decrease production by 558,000 barrels.
The Ministry of Mining of Mongolia has cited the deliberate decrease in production as the reason for fuel price increases in the international market. The price of Brent Crude oil jumped from 46.38 USD per barrel in December 2016 to 56.92 USD per barrel in February 2017.