On Differentiated Diesel Prices

Kazakhstan has introduced differentiated prices for diesel fuel for different categories of consumers in order to prevent shortages on the domestic market.

Diesel is undoubtedly a social product, since it affects the production costs of goods made in the country. Different prices were introduced to contain prices and reduce social tension. Even so, it is far from clear who will monitor all this at the level of each filling station, and how. Consumption of diesel will probably fall by a small amount, but, it seems to me, not by much. Over time we will return to previous consumption volumes, because such a mechanism is extremely hard to administer, and the filling stations themselves will come up with a hundred ways around the restriction. There is one big advantage: filling station attendants will earn a good income. But that is all.

Technically, selling fuel under per-person limits is not the most elegant option.

I am myself an advocate of market methods, and subsidizing any goods will only lead to imbalances; it is better to learn to live within our means from the start. Nevertheless, if we have decided to fight high prices through cheap diesel, and to address the social issue through diesel as well, then it would make sense to design the mechanism somewhat differently.

First, for legal entities, I would propose a mechanism based on a tax refund of the excise paid on diesel fuel. All legal entities that consume diesel would have the excise, which is built into the price, returned to them through the tax system. This is easier to control, and consumption becomes transparent. The categories of companies entitled to a refund are defined, and the paid excise is then refunded in proportion to the fuel they consume.

For individuals, categories of citizens are defined, for example owners of vehicles with a special status (SUSN) and others, and a cashback on fuel purchases is set, capped at a calculated amount. Cards issued by second-tier banks can then be used for these transactions, with the refund paid to a single card only, so that a limited cashback is set per card. Banks are given access to driver's license data and link licenses to the individual identification number (IIN) and to the card. No cashback is paid on cards that have no driver's license linked to them. Outstanding fines and tax arrears can also be linked in, so that people with them are not eligible for cashback. In addition, big data can be used to build anti-fraud systems that identify abusive schemes and shut them down. I may be wrong, but it seems to me that it is better to use digital methods of control rather than manual ones.