The Ukrainian Railways public joint-stock company (Ukrzaliznytsia) signed the first contract for supply of diesel fuel based on formula pricing on February 12, 2018.
According to the Interfax Ukraine news agency, Vitalii Tsvihun, the head of the Production Support Center, which is a division of Ukrzaliznytsia, and Svitlana Yaschenko, the deputy head of the Anvitrade company, signed the contract in the presence of Ukrzaliznytsia’s head Yevhen Kravtsov and Deputy Minister of Economic Development and Trade Maksym Nefedov.
According to Kravtsov, this first purchase of diesel fuel based on formula pricing has enabled the company to save UAH 70 million from the moment price quotations were made because the original price was higher. "Together with the Ministry of Economic Development and Trade and the Cabinet of Ministers, we have finally managed to do what we had not been able to do for three years. We will switch to formula pricing for fuel purchases completely," he stated, adding that Ukrzaliznytsia buys fuel worth more than UAH 7 billion per year and that this is the company’s largest item of expenditure.
According to Tsvihun, the company concluded two contracts for supply of 20,000 tons of diesel each. The first contract was signed at the price of UAH 28,840 per ton and the second at the price of UAH 28,650 per ton (prices as of January 30).
"Previously, prices went up while the terms of contracts remained fixed, and suppliers almost never delivered to avoid making losses. This created opportunities for abuses involving 10% price increases once or several times," Kravtsov said. According to him, there were cases in which fuel was simply not delivered. It was difficult to calculate the losses that the company was incurring and assess the risks posed by reduction of cargo operations. Henceforth, Ukrzaliznytsia will have a fair situation in which diesel fuel will be an exchange-traded commodity with objective prices.
As reported, Ukrzaliznytsia selected the Anvitrade company to conclude a contract for supply of 20,000 tons of fuel at the price of UAH 28,840 per ton and 20,000 tons at the price of UAH 28,650 based on the results of an auction that was held on January 30.
At the same time, Ukrzaliznytsia stated its plans to switch to formula pricing for purchase of fuel. The price of fuel will be calculated based on Platts quotations and currency exchange rates (practically all the fuel on the market is imported). The contract price calculated via the formula may rise or fall, depending on changes in Platt's quotations.