State Weighing Reinstating Diesel Fuel Price Controls

Fifteen years after price controls on diesel fuel were lifted, the treasury and the Ministry of National Infrastructures are considering returning price supervision.

The ministries have been formulating a plan for reinstating such price controls over the past few weeks, with the maximum price to be set at NIS 7 per liter of diesel fuel at the pump.

The ministries have agreed to professionally examine the matter, by means of a study of market conditions, fuel company profit margins and sales agreements between fuel companies and large customers. The huge increases in diesel prices in recent months have pushed the ministries to take action. Diesel prices have gone up 46% over the past four months.

However, TheMarker has learned that an internal Finance Ministry dispute has so far prevented the plan from advancing. The treasury's budgets division objects to renewed controls, while the Israel Tax Authority strongly supports the move.

The wholesale refinery price for diesel fuel in the Mediterranean region - before taxes, transportation costs, fuel company and gas station profits, etc. - currently stands at NIS 3.6 per liter. According to the price control formulas in effect in the past, this would limit the present price of diesel to about NIS 6.9-7 per liter. But in actuality, Israeli fuel companies now charge NIS 9-10 a liter to the general public. They do provide discounts for long-term contracts with vehicle fleets and other big customers, but the private motorist is hit with the full price at most gas stations. This means that some 30% of diesel fuel buyers - the general public - are in effect subsidizing the cheap fuel for business fleets.

In addition, since the price of diesel fuel is not controlled, the signs you see along the highways saying "A discount of X shekels per liter" are in the realm of deception, since there is no standard price to compare the "discounted" price to - and every station can claim almost any discount they want.

In 1993 the retail price of diesel fuel for transportation at gas stations was removed from price supervision, while the wholesale price of fuel sold by the Oil Refineries remained under supervision. At the time, it was thought that gas station prices were influenced by competition between fuel companies and gas stations. Back then, most diesel customers were large institutional or government fleets, or businesses. In addition, diesel fuel also enjoyed a huge tax advantage over gasoline, a 38 agorot per liter tax compared to NIS 2.30 in tax for gasoline.

But as the years passed, diesel has become much more common for private vehicles, especially as more jeeps and mini-vans have been sold. In addition, the Tax Authority came up with a five-year plan to equalize taxes on gasoline and diesel.

Gasoline prices are still under price supervision at the pump. As part of the process of privatizing and selling off the formerly government-owned Oil Refineries, which began in January 2007, it was agreed to remove wholesale gasoline price controls, too, as fuel companies complained that their profit margins would be eroded. However, the steep rise in diesel fuel prices has raised a public storm, with consumers claiming that prices have risen completely out of proportion to the rise in world oil prices.

The Infrastructures Ministry responded by saying that discussions are being held on the matter, but no decision has been made yet.