The so-called “solidarity payment” is a confiscatory instrument aimed at achieving political goals rather than improving public welfare, believes Aleksejs Švedovs, Head of Strategy at the fuel trading company KOOL Latvija / Orelex.
“In the form in which it is currently presented by its authors—namely, without a clear and uniform pricing mechanism for all fuel market participants that reflects the actual conditions of the business—the ‘solidarity payment’ undermines the principles of healthy competition while in no way ensuring a reduction in prices if they rise in global markets,” Švedovs emphasizes.
He points out that against the backdrop of global instability, geopolitical risks, and sharp fluctuations in Platts quotations, the fuel market is already under significant pressure, and fuel prices in Latvia are rising faster than consumers can adapt. In such a situation, the decision to introduce the so-called “solidarity payment” appears not as a mechanism to protect society, but as an additional burden on that same society.
Politicians publicly present it as an instrument of fairness and redistribution of excess profits, but in practice one of the fundamental principles of economics is ignored—any additional costs imposed on businesses are ultimately passed on to consumers.
Fuel companies do not operate in a vacuum—they depend on international prices, logistics, currency fluctuations,
and regulation. If a new fiscal instrument is added to these factors, companies are forced to compensate for rising costs, and the most direct way is through higher prices at the fuel pump. As a result, it is not some abstract “sector” that pays, but a real person who often has no alternatives—someone who needs fuel to get to work, take children to school, or meet everyday needs.
Claims that “companies must share excess profits,” promoted at the level of the Ministry of Economics of Latvia, may sound politically convincing, but economically they mean only one thing—the final payer will be the consumer. And the consumer pays multiple times: through higher fuel prices, through more expensive supply chains, and through rising prices in shops. This creates systemic pressure from which it is impossible to opt out or “switch away,” because fuel is a basic necessity, and the consumer becomes dependent on decisions they cannot influence.
At the same time, it must be considered that the fuel business model has long been operating on the edge. Fuel margins are so low that fuel sales often do not cover infrastructure maintenance costs—stations, equipment, logistics, and staff. That is why fuel stations develop shops and additional services, which not only complement the business but effectively subsidize fuel supply and sales. If additional payments and restrictions are imposed on this already fragile balance, the sustainability of the entire system begins to collapse, the company warns.
Additional pressure also affects the market structure itself.
The fuel sector in Latvia is not homogeneous—there are both strong market players and more vulnerable companies. Those unable to compete through service, infrastructure, or assortment are forced to rely on the only tool available—price. To retain customers, prices are lowered to cost level or even below, effectively operating at a loss. However, such competition does not benefit consumers—it is only a temporary illusion.
Operating at a loss makes it impossible to cover operational costs, maintain stations, or invest in development. A destructive spiral follows: price reductions aimed at survival lead to declining volumes, rising unit costs, and even greater pressure on profit margins. Companies lose stability, accumulate insolvency risks, and eventually exit the market. As a result, the competition that previously restrained price increases disappears, the company explains.
It is emphasized that this is where the main risk for consumers emerges. If the market shrinks to one or a few large players, choice disappears, along with real price pressure. The consumer becomes even more vulnerable: not only do they pay more, but they also become dependent on a limited number of suppliers and their pricing policies.
As a result, behind the rhetoric of solidarity, a system emerges in which short-term pressure on businesses turns into long-term dependency for consumers. Fuel becomes more expensive, choice decreases, and people lose the ability to influence their own expenses, the company concludes.
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