The Ministry of Finance and Ministry of National Infrastructures are holding intense discussions ahead of the setting of the price of gasoline for September. The price, which is government controlled, is due to rise by NIS 0.03-0.15 per liter, at midnight on Wednesday, unless a last-minute formula can be found to prevent it, as happened last month.
The Ministry of Finance holds the key, as it has the exclusive power to set the excise on gasoline. Last month, the ministry cut the excise by NIS 0.31 per liter, equal to the amount of the upcoming price hike, thereby preventing it. The ministry agreed to the cut in the excise on condition that the cut be restored in September, and the Ministry of National Infrastructures cut the marketing margin for fuel companies.
Today, the Ministry of Finance said that it would consider a partial restoration of the excise cut, in part by freezing the periodic update, which would raise the excise NIS 0.05 per liter. The excise is fully linked to the Consumer Price Index (CPI) and VAT is applied to it.
The joint ministerial price committee is due to submit its recommendations on the amount of the fuel companies' marketing margin to Minister of Finance Yuval Steinitz and Minister of National Infrastructures Uzi Landau tomorrow. This margin, currently NIS 0.70 per liter of 95 octane gasoline, is the fuel companies' primary source of income.
Earlier this year Steinitz and Landau appointed the committee to review the marketing margin. At the moment, there is a substantial gap between the positions of the two ministries: the Ministry of Finance wants an immediate cut in the marketing margin of NIS 0.20 per liter; the Ministry of National Infrastructures wants a 2% cut. Landau also strongly opposes the introduction of an efficiency coefficient, which the government has already approved.
The Ministry of National Infrastructures is willing to cut the marketing margin by NIS 0.15 per liter in two steps: an immediate cut of NIS 0.08 per liter and the rest in six months. The ministry warns that too sharp a reduction is liable to bankrupt two small fuel companies: Ten Petroleum Company Ltd. (TASE: TNPT.B1) and Sadash Petroleum Ltd..
Ten and Sadash are especially vulnerable to a cut in the marketing margin because they pay a relatively higher price for the gasoline they buy and because they lack alternative sources of revenue, such as convenience stores like the four big fuel companies: Delek Israel Fuel Corporation Ltd. (TASE: DLKIS), Paz Oil Company Ltd. (TASE:PZOL), Sonol Israel Ltd., and Dor Alon Energy in Israel (1988) Ltd. (TASE:DRAL). Convenience stores are the fastest growing source of profit for these companies.
Published by Globes [online], Israel business news - www.globes-online.com - on August 30, 2011
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