According to Evelin Pärn-Lee, Director General of the Estonian Competition Authority, the analysis carried out by the Authority provides a foundational dataset to compare future market trends and make proposals to enhance competition if necessary. ‘The collected data show that the wholesale fuel market is clearly duopolistic and the retail market oligopolistic, but whether there may also be collective dominance in the retail market is uncertain at present,’ Pärn-Lee said.
The Estonian fuel market is small, accounting for only a fraction of the total fuel consumption in the European Union. The market is concentrated. This is largely due to high barriers to market entry. Three main types of fuel are sold in Estonia: 95 octane petrol, 98 octane petrol and diesel. The density of the petrol station network is one of the highest in Europe and, as expected, consumption is highest in Harju County and Tartu County. On the positive side, the fuel market is predominantly operated by well-capitalised companies that are able to ensure a stable supply and meet biofuel requirements.
At the same time, Estonian fuel market players are vertically interconnected, meaning that competitors in the retail market can also be good partners in the wholesale or storage market. Fuel pricing in Estonia is closely linked to world market prices and excise duty rates. The main price indicator is the S&P Global Platts quotation, which also determines the buy-in price. This also reflects the fact that while Estonian fuel prices follow world market price changes, local price changes are often slower (‘rockets and feathers’ pricing). Market operators have a good overview of market activities, monitor competitors’ prices, and adjust prices at petrol stations accordingly.
The system for meeting biofuel requirements in Estonia is complex and fragmented. Different public authorities, such as the Environmental Board, the Ministry of Climate, the Tax and Customs Board and Elering, deal with different aspects of compliance with the biofuel obligation, but there is no single competent coordinating authority to provide a comprehensive view and ensure clarity between the competences and responsibilities of different institutions. Such fragmentation can lead to silos, with each national authority dealing with its own area of responsibility while the big picture is incomplete.
Based on the findings of the analysis, the Authority also provided recommendations. For example, the Authority recommends increasing transparency of real-time prices, for example through an independent price comparison portal displaying real-time prices at petrol stations. A specific body should also be designated to monitor the fuel market at the national level, with the necessary competences and resources. This would allow for swift intervention where necessary, protecting consumers from price increases and market abuses. Strengthening market surveillance would ensure fair competition and prevent unreasonable price increases, providing better protection for consumers. ‘Implementing the recommendations could contribute to a better competitive environment that protects consumers’ interests and ensures fair pricing across the market,’ said Pärn-Lee.
In autumn 2022, the Competition Authority began mapping and analysing the competitive environment in the retail and wholesale markets for motor fuels, aiming to better understand the functioning of the fuel market, identify potential competition failures and propose pro-competitive measures. The Authority took a closer look at the retail and wholesale sales volumes and sales turnover, profitability of the companies, the size of price cuts arising from loyalty programmes for business and private customers, the volumes of these programmes and sales volumes of different fuel types. Additionally, it looked into how compliance with biofuel requirements is ensured and how it affects fuel prices, the duration for which companies have guaranteed fuel supplies, and how fuel supply prices are determined. The period analysed was 2019–2022, as this allowed for an assessment of the market situation in the period before and after the start of the COVID-19 pandemic, and thus does not significantly distort the results of the 2020 analysis.
The Competition Authority exercises state supervision over competition, electricity, natural gas, district heating, postal services, public water supply and sewerage, as well as railways, aviation and ports.