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2003-03-07 16:47:01

Gas Price Increases To Be Minimized

"The effort here is to provide protection to the Bahamian consumer, while at the same time allowing the oil companies to make a reasonable return on their investment." - Leslie Miller

Despite the spiraling cost of fuel on the international market, the government has not yet given leading petroleum retailers the green light to increase prices at the pumps.

Addressing parliamentarians in the House of Assembly yesterday, Trade and Industry Minister Leslie Miller indicated that although the whole world is in a state of flux over the escalating and unstable oil market - the fear of a US led war against Iraq has been further compounded by year-long protests in Venezuela, one of the world's major oil exporters - his Ministry finds it difficult to approve the suggested markup at the pumps.

Mr. Miller said his ministry is presently faced with a number of submissions from various oil companies requesting prices, which when the markup is applied would peg prices at the pumps well beyond $3.00 per gallon.

"While we can appreciate the position that local oil companies face at this time, my ministry finds it difficult to approve any grade of fuel for which the end result will push the cost of fuel beyond the $3.00 mark at the retail level," he said. "The effort here is to provide protection to the Bahamian consumer, while at the same time allowing the oil companies to make a reasonable return on their investment."

Presently, gas prices are pegged at $2.98 per gallon. The suggested markup, however, would possibly increase prices by almost 50 cents to $3.38 per gallon. The present allowable mark up is said to be the highest in the region.

One of the arguments put forward by retailers is that like any other ministry, petroleum changes hands quite a number of times before actually reaching the consumer. It is further argued that with each step, a cost is incurred by the various handlers, who are also hoping to make a profit. Consequently, the end product is inflated accordingly.

In the United States and The Bahamas, the invoice cost for one gallon of gasoline is 99 cents. The cost of delivery in the United States is 13 cents compared to 16 cents in the Bahamas. The supplier's mark-up in The Bahamas is 33 cents compared to eight cents in the United States, and the retailers' mark-up in The Bahamas is 44 cents compared to 10 cents in the United States.

Just last week, the price of a barrel of crude oil on the New York Mercantile Exchange was pegged at $37.15. According to Mr. Miller, some industry experts are even predicting that the cost of gasoline to the consumer could go even higher.

But while such arguments may appear to be a plausible position to accept and understand, the Minister said, consumers too have raised legitimate concerns.

"In some instances, it is felt that while successive sellers of a product presumably act to cover their cost and make a profit, sellers vary greatly in their pricing behavior, such as reaction to competitors, price changes and attempts to protect or increase market share," Mr. Miller said.

"Additionally," he said, "as prices rise and fall, some marketers reportedly re-price their product according to the cost of their most recent purchase, while others would anticipate the cost of their next purchase."

Instead, Minister Miller suggested that major distributors like Esso Standard Oil S.A. Ltd, Texaco Bahamas Ltd and Shell Bahamas Ltd., follow the example of Bahamian owned and operated, Freeport Oil Company Limited (FOCOL). After consultation with the Ministry, the company has agreed to maintain its existing prices under the $3.00 mark.

"This is an action that my ministry is strongly supporting and recommending that the other oil companies consider," he said. "Notwithstanding purchasing at higher invoice costs, FOCOL is able to retail gasoline at the same price as the Nassau based oil companies whose invoice costs are lower."

But according to Sales and Marketing Manager and Acting Country Manager of Texaco Bahamas Ltd and the Turks and Caicos Islands, Algernon Cargill, while his organization was not one of those companies requesting permission to hike prices as high as $3.38, he hopes the government would approve Texaco's request for a smaller increase.

That increase, he said, would be based on past processes and the government's own historically approved formula.

"Naturally, if the base cost of the product increases, the overall price would increase," Mr. Cargill said. "We have no control over the world's prices. And certainly if there is less expensive fuel without comprising quality, Texaco Bahamas Ltd., would import that fuel to Bahamian consumers. We are committed to this community and all of our actions have exemplified this over the past years. We take our role as a corporate citizen very seriously."

The government has approved seven margin increases to oil suppliers and retailers between 1979 to the present. The increases amounted to a 77-cent increase in the gasoline margin and a 37-cent increase in the margin for diesel.

In 2002, the FNM approved a 10-cent per gallon increase for gasoline retailers and a five-cent per gallon increase to wholesalers throughout the country.

It was rationalized at the time that the increases were necessary to secure the viability of gasoline and diesel operators and the jobs of many Bahamians that were employed by them.

By Macushla Pinder, The Bahama Journal

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