Gas retailers ‘not gone to sleep’ on margin rise

• Willing to accept ‘sensible’ phased-in increase

• Recent oil pice fall can be ‘win-win’ for solution

• Despite Russia/Saudi cut; gave PM Budget room

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

BAHAMIAN petroleum retailers yesterday said they “haven’t gone to sleep” over their push for a margin increase but are willing to take a “sensible” phased-in approach that will not overly burden motorists and the wider economy.

Vasco Bastian, the Bahamas Petroleum Retailers Association’s (BPRA) vice-president, told Tribune Business the sector and its issues “haven’t gone away” amid hopes the recent decline in global oil and fuel prices could prove a “win-win” for all parties by providing the necessary headroom for a resolution if the trend continues.

While Saudi Arabia and Russia did their best to reverse this by announcing new and extended production cuts, in a bid to halt the slide and drive global oil prices higher once again, he reiterated that the Association and its members would accept the 30 cent per gallon increase they are seeking being phased-in via a series of staggered increases to mitigate the impact.

Mr Bastian told this newspaper that gas station operators had allowed the Government to deal with the 2023-2024 Budget before seeking to revive negotiations between the two sides and, now that process has been completed, will seek to once again meet with Prime Minister Philip Davis KC and the Ministry of Finance’s technical advisers in a bid to resolve talks that began some 15 months ago.

“We’re still trying to come to some sort of resolution,” he said. “We haven’t heard anything from the Government for a while, but we felt it best to give them and the Prime Minister time to deal with the Budget, and hopefully we can now go back and speak to him again, speak with the people from

between the two sides and, now that process has been completed, will seek to once again meet with Prime Minister Philip Davis KC and the Ministry of Finance’s technical advisers in a bid to resolve talks that began some 15 months ago.

“We’re still trying to come to some sort of resolution,” he said. “We haven’t heard anything from the Government for a while, but we felt it best to give them and the Prime Minister time to deal with the Budget, and hopefully we can now go back and speak to him again, speak with the people from the Ministry of Finance, speak with Michael Halkitis, minister of economic affairs, to try and give us some form of relief at some point.

“Hopefully one day soon we will be able to sit down with the Prime Minister. We want to be able to resolve this issue, and we have to take a sensible approach. It’s a line out of the Prime Minister’s book. We want to allow retailers to become profitable, but we also want to make sure that whatever we do - whatever advice we give the Government - is not a complete burden on the overall economy.’

“We want to be able to use a sensible approach to this, and a phased-in approach, to what we’re trying to accomplish. Were asking for 30 cents [margin increase per gallon of gasoline], so maybe phase it in over time. Maybe 20 cents now, and the remaining 10 cents six to eight months later when the economy starts to pick up. We’re still hopeful, and we want to work with the Government to find the best resolution to our big concern as an industry.”

The petroleum retailers’ major issue is that their inflexible, price-controlled margins are forcing them to operate at a loss because they are no longer sufficient to cover a multitude of substantial cost increases that have occurred post- COVID during the cost of living crisis. While all other businesses are able to adjust their pricing to consumers accordingly, so that their expenses are covered and they can still earn a profit, gas station operators cannot.

The Government, though, chiefly through Mr Halkitis, has stuck firmly to its position that it will not approve an increase in gasoline and diesel margins because of the negative impact this will have on all motorists, households and businesses. However, acknowledging the retailers’ difficulties, the Government did quietly provide the sector with a collective $6m cash rebate - including $500,000 of tax offsets - last summer when oil and fuel prices peaked.

Mr Halkitis has also sought to draw attention away from the industry’s core concern - the fixed price controlled margins - by pointing to the “onerous” rents, royalties and other fees imposed on retailers by the landlords; the oil majors or wholesalers of Rubis, Esso (Sol Petroleum), and Shell (FOCOL Holdings).

However, the minister also hinted that the Government may consider a margin adjustment if oil/fuel prices fall to levels that will ease the burden for motorists and the wider economy. Average crude oil spot prices currently stand at $74.12, down 10.11 percent compared to last month’s $82.46, and a 32.67 percent reduction from $110.10 exactly one year ago.

It is unclear whether global oil prices have fallen to levels where the Davis administration may contemplate a margin increase, but Mr Bastian yesterday suggested recent declines - if they continue and become a trend - could provide the necessary breathing room for the Government to grant some kind of margin increase.

“It definitely provides a better position for all parties,” he told Tribune Business of the decline. “It’s a win-win for everybody. It’s a win-win for everybody. I can speak for my negotiations and the last couple of months. We understand the Government’s position and we’re trying to work with them to come to an amicable resolution.

“We haven’t gone away. We haven’t gone to sleep. We’re hoping very soon to get back around the table and resolve this matter.” However, Saudi Arabia and Russia yesterday moved quickly to place a floor under the recent global oil price decline and potentially reverse it, although the market reaction was only moderately positive.

Saudi Arabia, the world’s biggest exporter of crude oil, said it would extend its one million barrels per day production cut until at least the end of August having only initially planned that this would last for July. Russia is cutting its supplies by 500,000 barrels per day in August, but there was only a modest impact in crude prices yesterday as the Brent and West Texas Intermediate indices closes up 0.25 percent and 0.33 percent, respectively, at $74.84 and $70.02 per barrel.

Mr Bastian said high crude oil prices are bad for Bahamian petroleum retailers because it costs them more to purchase fuel supplies from their wholesalers, often forcing them to incur higher bank fees through overdrafts and credit card charges. Yet, because of the fixed price controlled margins, their earnings remain the same in what is essentially a volume, market share-based business.

“Any time the price of gas reduces on the global market, and it trickles down to us, it puts less pressure on us as a result of what it costs to buy fuel,” Mr Bastian explained. “The cheaper crude oil is, the better for us. It costs us less cash flow to buy gasoline now. We don’t have to put out as much cash as we did when it was $6.50 or $7. It’s a good sign.”

Mr Bastian said yesterday’s per gallon of gasoline prices stood at $5.70 at Esso, and $5.62 and $5.63 at Rubis and Shell respectively. This, he added, was in stark contrast to 2022’s $7.39 per gallon peak - a time when the industry felt $8 per gallon was a real possibility in the aftermath of Russia’s Ukraine invasion.

The last margin increase enjoyed by gas station operators occurred in 2011, some 12 years ago, under the last Ingraham administration, and operating costs and inflationary pressures have increased substantially then. That took gasoline margins from 44 cents per gallon to 54 cents, where it has remained ever since, while diesel stands at 34 cents per gallon.

Comments

bahamianson says...

Where ya been , den, DisneyWorld?

Posted 4 July 2023, 3:44 p.m. Suggest removal

birdiestrachan says...

The shipping port can increase their cost without Government approval , ten cents is sufficent , twenty cents is harsh persons will have to stop driving when it is not necessary

Posted 4 July 2023, 4:43 p.m. Suggest removal

Bigrocks says...

well, now as of July 1 duty on gas going up .35. then add on VAT. you are going to see 6.50 gas faster than you can blink an eye.

Posted 5 July 2023, 2:01 p.m. Suggest removal

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