MARKET ECONOMY PUSH THROWS PETROLEUM PROFITS OUT OF BALANCE

June 15, 1992
Efforts by the Commonwealth of Independent States to move toward a market economy have greatly increased profits for some sectors of the nation's petroleum industry while leaving others deeply in debt. Refineries and petrochemical plants have reaped especially large benefits from price hikes that far exceeded overall industrial inflation, the Moscow press reports. But pipeline enterprises can't pay their contractors, while oil and gas producers, at least until last month's round of

Efforts by the Commonwealth of Independent States to move toward a market economy have greatly increased profits for some sectors of the nation's petroleum industry while leaving others deeply in debt.

Refineries and petrochemical plants have reaped especially large benefits from price hikes that far exceeded overall industrial inflation, the Moscow press reports.

But pipeline enterprises can't pay their contractors, while oil and gas producers, at least until last month's round of price hikes, could not afford to buy materials and equipment.

Most of the high profits booked by! refineries and petrochemical Plants were not used to upgrade notoriously obsolete units, the Russian press co Instead, the increased revenues were used largely to boost workers' wages and management's salaries.

PRICE DIFFERENCES

From March 1991 to March 1992 Russian commodity market prices for a ton of 76 octane gasoline leaped from 195 rubles to a maximum of 6,300 rubles. That's more than a 3,000% hike.

Meanwhile, the government controlled price covering 60% Russian crude production rose only 400%.

The Moscow business weekly Ekonomika i Zhizn (Economics and Life) pointed out that besides bargain prices paid by Russian refineries for at least part of the crude, petroleum processing enterprises have been able to buy materials and equipment at relatively low cost.

Whereas in March 1991 a Russian refinery had to sell 717 metric tons of 76 octane gasoline to buy a VAL2-2109 automobile, the same vehicle could be purchased in March 1992 at a cost equal to 95.2 tons of this grade of gasoline on commodity exchanges.

Free market cost of sheet steel, cement, and lumber also rose far less than petroleum products.

Pravda reported that in 1 month the price of a ton of polystyrene produced by a petrochemical plant in the Ukrainian city of Gorlovka leaped "64 fold." The newspaper suggested a cap on the rate of profit earned by industrial enterprises to prevent economic catastrophe in the former Soviet Union.

Copyright 1992 Oil & Gas Journal. All Rights Reserved.