Thursday, March 16, 2023
• Three oil majors brought into Gov’t talks
• FOCOL chair: Don’t leave our needs out
• Hints at ‘central purchasing’ scepticism
By NEIL HARTNELL
Tribune Business Editor
FOCOL’s chairman yesterday said he was “very confident a solution will be found” to the Bahamian petroleum industry’s financial woes, and added: “This will not be fatal to the country.”
Sir Franklyn Wilson, speaking after the BISX-listed petroleum products provider and its two competitors met yesterday with the Government, told Tribune Business the wholesalers were asked to review “some options and ideas” that were discussed and respond “within a few days” with their position to the Davis administration.
Describing the sector’s issues as “complex” and “challenging”, he added that that it has “seen this rodeo before” in terms of retailers’ complaints about how their survival and profitability are being squeezed by inflexible price-controlled margins that are insufficient to cover ever-escalating operational costs. Hinting that the three oil companies are subject to similar pressures, the FOCOL chief said the issues were “not at one level”.
Sir Franklyn told this newspaper that the outcome had often resulted in “benefits” for gas station operators, the petroleum industry’s retail level, while the three wholesalers - FOCOL (Shell), Esso (Sol Petroleum) and Rubis - “get nothing” in terms of margin or other concessions from the Government.
However, he said he was “encouraged” that on this occasion the retailers - who are supplied with the fuel and related petroleum products that they sell by their respective wholesalers - have not made allegations or complaints they have been “mistreated” by the latter.
The FOCOL chief, though, hinted he had doubts over the “central purchasing” that the Government plans to explore as potentially generating cost savings and efficiencies through buying The Bahamas’ fuel supplies in bulk. Michael Halkitis, minister of economic affairs, said earlier this week that the Davis administration wanted to assess a mechanism used by other Caribbean states, but Sir Franklyn indicated the present structure had worked well for this nation to-date.
The Government has moved swiftly, following Monday’s talks with the Bahamas Petroleum Retailers Association and its members, to engage with the three oil major wholesalers as part of its promised strategy to review the industry’s costs and pricing at every level as it bids to square its ‘no increase in pump prices’ stance with gas station operators’ demands for relief.
“There was a meeting held today with the local leaders of the petroleum industry with minister Halkitis and other advisers to the Government,” Sir Franklyn told this newspaper. “The parties are in discussion, and they’ve asked the industry to consider some options and ideas. The industry will meet and get back to the Government in the time that the Government has requested them to do so; in a matter of a few days.”
He declined to go into detail, or provide specifics, on what was discussed between the three oil companies and the Government or what the trio’s likely proposals and solution will be. However, the rents, franchise fees, royalties and other levies that the wholesalers charge gas station operators will likely have come up in the talks.
“It’s a complex situation, it’s a challenging situation, and certainly speaking for FOCOL, we will be as responsive as we can in the circumstances,” Sir Franklyn said of the margin and other financial pressures facing the entire petroleum industry. “Everyone knows what the facts are, and it’s important for the industry to meet and discuss what role the wholesalers will have in this process.
“I’m sure the dealers and the Government will be aware we’ve seen this rodeo before. There’s been any number of times. Politics is politics. The dealers, the retailers, get benefits and the wholesalers don’t. That’s happened any number of times. That’s life. We understand that. I think the wholesalers understand that, and I think the retailers and the Government at the appropriate time will understand that.
“This will not be the first time that the retailers got something and the wholesalers nothing. I’m sure everyone is aware of that.. I’m sure the Government is aware this exact same movie has happened previously. They get something and the wholesalers get nothing. That has happened any number of times. I’m done making that case. I’m sure the retailers will confirm it’s any number of times.”
Gas station operators last enjoyed a margin increase more than 11 years ago under the former Ingraham administration in 2011, when it was increased by 10 cents per gallon of gasoline to the present 54 cents. However, wholesale margins remained much where they were at 34 cents per gallon.
Breaking down the components of gas prices, besides the landed cost of fuel, consumers also pay the price-controlled margins of 34 cents and 54 cents for retailers and wholesalers, respectively. However, the biggest financial beneficiary from the industry is the Government via the Public Treasury, due to the fact that on every gallon of gasoline sold it earns $1.16 plus 10 percent VAT. Yet it incurs none of the industry’s costs.
“The only other point I can make is throughout this process I am not aware of any claims from the retailers that the wholesalers are mistreating them or being unreasonable; that type of stuff, which is encouraging to see,” Sir Franklyn said. “These types of allegations have surfaced in prior circumstances, but have not raised their head in these discussions.
“The retailers know the facts, and the Government knows the facts. They know it’s a long time since the wholesalers got an increase. It’s the exact same process identified by the retailers. It’s not at one level. The capital costs are at the wholesale level. It’s not the retailers. It’s a team effort. We’re all in business to serve our various stakeholders.”
Asked how optimistic he was that a mutually beneficial solution to the industry’s woes will be reached for all, including consumers, Sir Franklyn replied: “There’s no choice. The country has to go on. I have no doubt that this won’t cripple the country.
“It is what it is. This will not be fatal to the country. It doesn’t rise to that level. A solution will be found. We have to. The country has to survive these types of issues. We survived Hurricane Dorian. This doesn’t rise to the level of Dorian. We’ll get through it. We’ve been asked to consider certain things, and we will in a very responsive manner.”
Mr Halkitis, on Tuesday, suggested the Government may also explore the “central purchasing” used by other Caribbean countries. “We resolved to look at the entire model,” Mr Halkitis said. “Certain Caribbean countries have a system of central purchasing. We want to take a look at that and see if that is suitable in our environment. And we just want to look at the entire chain - from wholesale straight down to the consumer and just examine it.
“So there’s nothing we want to propose right now, but it’s just some other options that we’re looking at. And I could tell you that, you know, if you look right down the chain, everyone is going to say they’re under pressure. The overall concern of the Government is anything that would cause an immediate increase in gas at the pumps for consumers.”
Sir Franklyn, while not explicitly saying he was opposed to the “central purchasing” concept, or that it would not work in The Bahamas, yesterday hinted at reservations. “My understanding is that there’s some countries in the region where, in effect, the Government has become one wholesaler,” he explained. “We hear that, but The Bahamas has distinguished itself from many countries in the Caribbean.....
“I don’t think it’s very common for us to look to the region necessarily for creative policy initiatives. We tend to look to our own creative genius and what we think makes sense for The Bahamas. We hear it, and policymakers have a responsibility to do what is best for the country, and if they think that’s best for the country then so be it.
“There are many things that happen in the Caribbean that do not happen in The Bahamas. The second statement is The Bahamas has a higher per capita income than other countries in the Caribbean. Often-times there’s a relationship between the two.”
Petroleum retailers say their main problem is that a fixed 54 cent margin is no longer sufficient to absorb ever-increasing costs, which include higher overdraft and card fees, plus rising utility and labour costs.
The minimum wage rise has hit gas stations hard, given that many persons were employed at this salary level. The resulting $50 per week, or 24 percent, increase has also required them to pay increased National Insurance Board (NIB) costs. And last year’s spike in gas and oil prices, while increasing dealer’s top-line sales, means higher turnover-based Business Licence fees even though profits have not changed due to the fixed margins.
NIB contribution rate increases and the up to 163 percent increase in Bahamas Power & Light’s (BPL) fuel charge also await, with many already struggling to cover the elevated Business Licence fees due by March 31.