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Montenegro, Fuel as a liquid gold: Strategic reserves should be formed

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Although both this and the previous two governments (Duško Marković and Zdravko Krivokapić) announced the formation of a strategic fuel reserve, in order to be able to react in the event of disruptions in the market, neither they nor the law are in sight.

At the time of one of the biggest oil crises in Europe, when the prices of oil derivatives exceeded all records, the only thing our administration did was to reduce the excise tax rate by 15 to 50%. As a result, fuel in Montenegro is the most expensive in the region.

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Obligations

Montenegro, as a member of the Energy Community, has committed to apply Directive 2009/119/EC on mandatory oil stocks on January 1. It regulates the issue of maintaining minimum mandatory reserves of crude oil and/or oil derivatives. According to EU regulations and recommendations for negotiation chapter 15 (energy), the state was obliged to have the necessary legal framework and formed fuel reserves by January 1 of this year.

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The Ministry of Capital Investments (MKI), headed by Ervin Ibrahimović, stated that the draft of that act is in the final phase of coordination with the Secretariat for Legislation, after which it will be sent to the Government.

The draft of this law has been In the works since 2016, when a public debate was held during the mandate of the Government of Duško Marković. The Ministry of Economy told Pobjeda in September of last year that the public debate has ended and that they are entering the phase of analyzing remarks and complaints, after which they will send the final text to the Government. In March of last year, while Mladen Bojanić was at the head of the MKI, Pobjeda was informed that they expected the draft law to be ready in two to three months, and from the same department they told our editorial office in February 2021 that the draft had been prepared. And that adoption is expected in the third quarter of 2021, after receiving the opinion of the European Commission.

Investment

The current MKI said that the formation of a mandatory fuel reserve should not be seen as an expense but as a long-term investment.
– Oil derivatives are commodities and should be viewed as an investment tool. The main purpose of such an investment is security in the event of a supply interruption, but also the fact that stored derivatives also represent value for the country and citizens. The law in question can be considered a necessity, but also a solution that can bring a number of positive effects, which, among other things, include the creation of preconditions for the further opening of the oil derivatives market and the increase of market competition through the reconstruction/construction of part of the planned storage capacities – said the MKI and confirmed that they have mastered the theory. They haven’t come to practice yet.

Price increase

As the EU Directive implies stocks that correspond to the amount of 90 days of average daily net import or 61 days of average daily domestic consumption, depending on which amount is greater, the MKI calculated that we need 100,000 tons of fuel, because in 2021 we spent 375,843 tons of fuel, of which 70% is diesel, 11% gasoline and five to six percent jet fuel/LPG.

The ones who are obligated to form mandatory reserves are the Administration for Hydrocarbons and every importer, and the reserves must have derivatives whose combined representation is greater than 75 percent of domestic consumption from the previous year.

– The Administration should form at least one-third (33.3 thousand tons), and importers two-thirds (66.6 thousand tons) of the mandatory reserves – said the Ministry of Interior and added that the Administration must store finished products, and importers can choose to whether they will keep the derivatives in physical form or in the form of tickets.

– Compulsory reserves in intangible form (tickets) are contracts on the right, but not the obligation, to purchase fuel according to predetermined criteria in a certain period of time. In this way, the person obliged to form the mandatory reserves transfers the obligation to keep the reserves to the legal entity that is the owner of oil derivatives – said the MKI.

It should be expected that fuel will become more expensive due to the formation of reserves, because the Government is obliged to determine the amount of compensation to the Administration and importers for this purpose.
Bearing in mind that the law introduces a fee for the formation of strategic reserves as an integral part of the selling price of fuel, MKI expects a price increase.

– The amount of the fee is determined by the Government, as well as the percentage that belongs to the Administration and which belongs to the importers. The goal is to make the compensation amount so that the reserves are maintained on a non-profit basis – explained the MKI.

Modernization of reservoirs in Bar, Lipci and Bijelo Polje is required

MKI points out that storage capacity will be a big problem.

– The first priority is the modernization of the existing storage capacities, and then the construction of new ones – they said from MKI and added that tanks at gas stations must not be used for storing mandatory reserves. The total storage capacity of oil installations in Bar is 17,600 cubic meters, and in addition, the state owns storage capacities in Lipci (10,200 cubic meters) and in Bijelo Polje (24,500 cubic meters).

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