The South East Europe (SEE) region constitutes seven countries of Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, Serbia and Turkey, where all of them, apart from Turkey, are still in the process of joining the European Union (EU). Despite gradual economic growth and relatively descent investment opportunities of the past years, the region still lags behind the neighboring transition economies in areas such as competitiveness, transparent governance as well as implementation of structural reforms. Even though air quality and greenhouse gas reductions do not constitute the region’s main priorities compared to political, economic or financial issues of the governments, the EU requirements, in a form of legal instruments affecting the fuels and transport sector, have helped push the region towards the use of cleaner fuels.
Stratas Advisors has been following fuel quality developments in the SEE region for years, while this is the fourth time that Stratas Advisors reports that six out of seven countries have a 10 ppm sulfur limit in place for automotive gasoline and diesel, except for Bosnia and Herzegovina which has yet to reduce its sulfur limit from 150 ppm and 350 ppm in gasoline and diesel respectively to 10 ppm max. Nevertheless, in practice, the fuel quality regulation allowing 50 ppm and 10 ppm grades, adopted by the Federation of Bosnia and Herzegovina, one of the political entities, is followed by the entire country. Based on the fuel quality monitoring results and industry stakeholders, 10 ppm sulfur grades constitute at least 90% of the gasoline and diesel fuel pool in Bosnia and Herzegovina while the rest accounts for 50 ppm sulfur grades. For the other SEE countries, close to 100% marketed fuels meet the 10 ppm sulfur limit, nevertheless, some issues related to fuel smuggling in a view of tax evasion might be still present, but likely at a limited scale.
As a result, Stratas Advisors observes that after sulfur reduction, the next priority for the SEE region has been an enforcement of established fuel quality monitoring systems. Apart from Albania and North Macedonia, all of the SEE countries have mandatory fuel quality monitoring systems in place while Turkey, Serbia, Montenegro and Kosovo belong to the countries with the most elaborated quality systems in place. Furthermore, mandatory fuel labeling in Serbia has helped fight tax evasion and fuel smuggling. In North Macedonia, fuel suppliers are obliged to submit fuel quality reports to local authorities on a monthly basis and only in case of doubt in fuel quality, a re-examination is carried out.
Similarly to the EU, RON 95 is the most widespread gasoline grade in the SEE region. Montenegro is the country with the highest share of premium gasoline fuels (RON ≥98) accounting for 18% in 2018. The figure below shows the 2018 octane market shares for the SEE countries depending on data availability.
Despite economic difficulties, the SEE region has succeeded in making significant progress in regulating its fuel and transport sector over the past years. Nevertheless, a number of challenges in this respect persists: introduction of 10 ppm sulfur limit for both gasoline and diesel in Bosnia and Herzegovina, enforcement of fuel quality monitoring systems in Albania and North Macedonia as well as the change of old vehicle fleets in countries where the average vehicle fleet age is considerably higher than the regional average – Bosnia and Herzegovina, Kosovo, Montenegro and Serbia. Within the next few years, Stratas Advisors expects more changes to come in Serbia and Montenegro thanks to negotiations on joining the EU.
Octane Market Shares in the Selected Countries of the SEE Region (2018)
Source: Stratas Advisors based on the data from national statistical offices and relevant reports, 2020