Wednesday, May 24, 2023
Do you think petroleum retailers should have their margin increased?
- Yes 72%
- No 28%
68 total votes.
By NEIL HARTNELL
Tribune Business Editor
Bahamian petroleum retailers have "no intent to disenfranchise the motoring public", their president asserted yesterday, as he warned that the halt to diesel sales will "go on until such time" as their plight is resolved.
Raymond Jones, head of the Bahamas Petroleum Retailers Association (BPRA), told Tribune Business his members are "resolute" and plan to "stay this course" with many now pushed to the brink of closure by the failure to reach agreement with the Government over a "pennies on the gallon" increase to their price-controlled fixed margins following more than a year of negotiations.
Suggesting that all sides, including the three oil majors (Esso, Rubis and Shell), as well as the Government had been "right at the door" of sealing a resolution mutually acceptable to all, he added that the retailers' move was "a measured action" given their view that further negotiations are pointless and only a concluded agreement will do.
Mr Jones, confirming that neither himself nor any other Association Board member has been contacted by the Government since the diesel sales halt began on Monday, told this newspaper that gas station operators are seeking their equivalent of "a livable wage" that will enable them to "sleep at night" and pay their bills.
Acknowledging that the diesel sales stoppage is "not desirable", he reiterated that the sector was only interested "in a long-term play" where margins were increased by the equivalent of around 7-8 percent of landed fuel costs. Asserting that, even with this, "we're not doubling what we're making in returns", Mr Jones said the per gallon increase would be "virtually unnoticeable" to Bahamians while the Government is earning three times' what retailers receive on petroleum sales.
However, not all gas stations have stopped selling diesel. Mr Jones said "pretty much everybody other than Shell" had halted sales, acknowledging that around seven sites "owned and operated" by its wholesaler, BISX-listed FOCOL Holdings, continue to make diesel available to motorists who require it.
"That's fine. People join or don't join the cause. That's fine," the Association president said in response. While that has temporarily enabled FOCOL's stations to corner the market on diesel sales, Mr Jones said the fuel has been "a bone of contention" with his members for some time because of the high costs they must pay to acquire it from their wholesale suppliers only to gain minimal returns.
With diesel prices up 12 percent for the year to end-March, based on Bahamas National Statistical Institute (BNSI) data, he explained that gas station operators were incurring significant overdraft and credit card fees to purchase diesel supplies at the front end but only earned "a few pennies" in return. Diesel margins are 34 cents per gallon compared to 54 cents on gasoline.
"It's been a continuous drag to maintain this diesel sales operation," Mr Jones added. "The margin on diesel is 34 cents versus what we get on gasoline, which we have already said to the Government is not a profitable margin given the rise in costs over the last year.
"Diesel is something we buy and make a few pennies on, but you are paying the high cost to acquire it. It's been a bone of contention for some time. The Government is aware of it because we gave them the operating costs for a gas station together with the full breakdown."
The last margin increase enjoyed by gas station operators occurred in 2011, some 12 years ago under the last Ingraham administration. 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. However, operating costs and inflationary pressures have increased substantially then, especially amid the post-COVID cost of living crisis.
As a result, dealers are arguing that the present price-controlled fixed margins are insufficient to enable them to cover their operating costs and break even, let alone make a profit. Besides facing an up to 163 percent increase in Bahamas Power & Light (BPL) fuel charges amid peak summer consumption, station operators also have to pay rent, franchise and other fees to their wholesale landlords, as well as contend with a 15 percent increase in insurance costs.
Mr Jones also pointed out that, with many gas station employees paid at minimum wage, the 24 percent or $50 per week increase implemented from New Year's Day has had to be covered by operators without any increase in their margins. And the increased wage bill has also led to a matching increase in National Insurance Board (NIB) contributions.
These combined cost increases, together with the absence of any margin increase, has pushed many retailers to breaking point with some in a position where it would be "cheaper to close" than continue operating. As a result, Mr Jones said the Association and its members had been left with little choice but to act accordingly.
"We're very mindful of the consumers we serve. We don't want to disenfranchise them in any sort of way," Mr Jones told Tribune Business. "But we're not running a charity. We're not social services. Because we're price controlled by the Government we need them to... make the adjustment" to the fixed margins.
Noting that BPL and virtually all other businesses and industries have been able to adjust prices to cope with rising costs, but not the petroleum sector, he added of the diesel halt: "We'll take this as what we consider a measured action and, at some point, if we don't have the ability to sit down and come to a conclusion, we will have to increase the effect of what we do.
"This will go on until such time as we have a meeting of the minds, and come to a conclusion. I don't think we need to be negotiating any more. We've exchanged ideas and proposals. We were right at the door [of an agreement], but we need to sign it, put it in writing and sign off on it, discuss the implementation and let's go.
"It's just a question of the Government sitting down and saying: 'Right, here's what we propose and here's how we do it. Here's the implementation plan'. We say: 'Thank you very much. You've been very generous. Let's go. Let's get back to work and let the public drive'. There's a holiday weekend coming up and we want people to be driving, but we need to get some semblance of an agreement as opposed to continuing the dialogue," Mr Jones continued.
"In no way are we trying to threaten the public or the Government or anyone else. Many of the staff employed by gas stations got that 24 percent minimum wage increase. We're saying: 'Please give us a chance to offset this so we can sleep at night, pay our bills, pay VAT, pay national insurance.
"The petroleum retailers are resolute. We will stay this course as we need to come to an agreement, come to a conclusion, let us get back to work and keep everyone employed. There is no intent to disenfranchise the motoring public, our customers, because we depend on them, but we have to conclude this so we can move on. We're losing money by not selling diesel, giving up some revenue again, although it's only pennies."
The Government, though, has reiterated several times that it will not approve anything that will immediately increase gasoline and diesel prices at the pump - such as a margin increase for both retailers - because it does not want to further burden Bahamian families and businesses given the ongoing cost of living crisis. Hence the sticking point with retailers' calls for a margin increase, and the Davis administration has yet to respond to the diesel sales halt or reach out.
"We don't have a crystal ball, but we're hoping that in the next day or so the Government will say to come and sit down and let's finish this up," Mr Jones said. "We've negotiated, them and us, in good faith to address the plight of this industry and get some resolution.
"The only next step would be for us to change our hours, reducing station hours from 24 to ten. That's not where we want to go. We need to get it resolved; we cannot afford for it to go on any longer. At this point, not selling diesel is detrimental. Not selling gas would be even worse as without it the economy would shut down, but it would be cheaper at some point to close.
"That's not the idea. The idea is to get a deal and move on for the benefit of the economy. We don't want to see employees out of work, we don't want to see our customers in long lines queuing for gas. That's not the long-term plan. The long-term plan is let's make a margin adjustment. Every other business has been allowed to make an adjustment. We're spending too much time in this effort instead of focusing on how we can improve our business."
Reiterating that gas station operators are seeking their equivalent of "a living wage", Mr Jones said their requested margin increase has not changed. "It's 7-8 percent, something in that range, on the cost of landed fuel," he added. "It's nothing significant for the public. It's only pennies on the gallon. We're not even doubling what we're making in returns. The percentage is miniscule for the public.
"Right now, the Government is getting three times' or more than the person running the business and shouldering the responsibility - 10 percent VAT and $1.15 duty per gallon. We're not an economy that pays income tax, so the Government has to shoulder a lot of the responsibility. We're not saying give us something from what they get. We're saying let us work."
Mr Jones said the margin increases requested by the Association would go "virtually unnoticed" amid all the cost increases of far greater magnitude that continue to occur.