Montenegro’s proposed Euro model could raise oil companies’ costs and put smaller and family-run fuel stations at risk of staff cuts or closure, Draško Striković, secretary-general of the Association of Oil Companies of Montenegro (UNKCG), warned. The reform of the tax burden and wage structure is expected to change financial planning across the sector, he said in comments on the market.
The industry supports higher living standards and wages, but the sustainability of that growth is the key issue, according to Striković. Fuel margins have been regulated and limited for more than 24 years, leaving companies little room to offset substantially higher operating costs through pricing.
Fuel consumption rises only slightly and gradually, so a sharp increase in sales is not a realistic way to make up for higher expenses. “Fuel is key to all economic activity and a basic need for the population,” Striković said, adding that the continuous nature of demand gives companies little scope to generate new revenue by selling more.
The industry has made unsuccessful formal requests to the relevant authorities in recent years for margin changes as operating costs continued to rise after global inflation. Striković argues that the state should adjust the long-standing cap to provide sustainable revenue and help cover higher labour costs. He also wants changes in costs included among the expenses recognised under the regulated system.
Smaller operators face greater pressure
Small and microbusinesses, particularly those in northern Montenegro, are expected to bear the greatest burden of the reform, based on economic analyses cited by Striković. Smaller oil companies have fewer stations and less financial room to absorb costs than larger groups, which can draw on revenue from shops, restaurants and franchises.
Smaller distributors generally rely almost entirely on fuel margins, which are set by law. The proposed model could therefore weigh on all oil companies, with the greatest pressure on businesses without other sources of income.
Companies are not currently planning mass layoffs because they want to retain skilled staff. The sector is already struggling to find workers, however, as employees increasingly move to more profitable industries after years of restricted margins. Oil companies no longer have the status of one of Montenegro’s best-paid industries that they had about two decades ago, making it harder to keep experienced staff.
Introducing the model could bring initial disruption and fluctuations. Larger systems are better able to absorb regulatory and tax increases, while pressure on profit margins is high. If the reform is not accompanied by a margin adjustment and firms cannot cover additional operating costs, each company will have to consider optimising its workforce; there are currently no precise estimates of how many sector jobs could be at risk.
Higher labour costs combined with low margins could lead to the closure of some smaller and family-run stations, with a potential long-term effect on market competition. “If the state does not increase margins, smaller stations will close,” Striković said.
