Consultants say ‘no’ to gas pump price controls

| 26/04/2021 | 59 Comments

(CNS): The public is being encouraged to submit comments on a report by consultants contracted by the Utility Regulation and Competition Office (OfReg) on the Cayman Islands’ fuel market and how to make it more competitive and fair, given the serious challenges presented by its size. Identifying a significant lack of competition in a highly concentrated market, the consultants have suggested some vague changes in their recommendations. But although they fell short of offering serious solutions to Cayman’s fuel price dilemmas, they repeatedly stressed that government should not introduce price controls.

Duke Munroe, OfReg’s chief fuels inspector, told CNS that he will be appearing on the radio and other platforms over the coming weeks to help explain some of the issues and to encourage the public to contribute to this important consultation, which will otherwise be dominated by the fuel suppliers. Munroe said this consultation is critical to everyone and the regulator is urging the public to call them to discuss how they can make their feelings known because the process should not be confined to the suppliers and consumers must have their say too.

The report was written by Economics Partners Limited, who specialise in competition and regulatory economics and market assessments. They were appointed as consultants in September 2019 after an open tender. The report is long and complex but the main conclusion, which will be no surprise to consumers, is that there is no real competition in the Cayman Islands when it comes to the fuel market.

The consultants said the fuel markets were highly concentrated with insufficient commercial activity in alternative products such as Ethanol biodiesel, natural gas and others. Although they identified the small economy of scale as a major hurdle to real competition in the fuel sector, they offered a number of recommendations that did not include price controls.

But the consultants appeared very keen to avoid what they see as the “disadvantages of price controls”, despite the limited options in the Cayman Islands for dealing with the excessive cost of fuel, which is a significant factor behind the runaway cost of living. The authors of the report urged the government to use other regulatory options where available instead of controlling the price, especially at the retail level.

“In the Cayman Islands, competition in the fuel sector can be made to work more effectively through the introduction of other measures”, the consultants claimed. They explained that price controls would require ongoing monitoring and price setting on a near-continuous basis “because the international market prices of crude oil and the market import prices of refined fuels, change frequently and near-continuously”.

Price regulation in the fuel sector would therefore require much more intensive and ongoing work than in other sectors that are commonly subject to a form of price regulation.

“The Office should take into consideration that in other similar jurisdictions where price controls are imposed, this requires substantial budgets, human resources, and technological resources for proper implementation,” the consultants found. They said they did not recommend such an approach because the compliance burden on the companies would increase their costs, which would find a way of flowing through to consumers.

The consultants pointed to more vague ideas about managing the competitive conduct, including mergers control and abuse of dominance, as a means of increasing stakeholder awareness and more enforcement of the competition laws, closer monitoring of retailers and a mandated open access regime for certain critical “bottleneck” infrastructure, particularly infrastructure required to import bulk fuels. They also recommended reducing the barriers to market entry, as well mechanisms to improve the cooperation of stakeholders and outcomes in OfReg’s information gathering functions.

“The outcome of this exercise is significant to shape the next level of intervention and regulation of the fuel sector,” said Munroe. He claimed that to date OfReg’s monitoring and oversight had benefited fuel consumers and implementing the recommendations from this exercise would enhance its work. “We look forward to the input and feedback from all stakeholders, to conclude and implement the necessary regulatory measures.”

OfReg CEO Malike Cummings said the regulator’s focus was to ensure sustainable, reliable and consistently high-quality fuel options at fair prices to consumers.

“Despite the delays and challenges encountered during this important piece of work, the team sought to ensure the process was not compromised, recognising the critical nature of this assessment to inform recommendations for the regulation of the fuels sector,” he said.

See the full report on the OfReg website.

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Category: Business, Politics, Private Sector Oversight, utilities

Comments (59)

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  1. Caymanian says:

    Want a suggestion? Ok. Let’s start with not allowing a conglomerate like the Brown’s group has. Let’s see.

    Industrial Park
    Red Bay
    Walker’s Road Esso
    East End
    BarCam is also part owned

    Did I miss any?

    How can we have a “competition” when you are competing against yourself.

    The funny thing is, gas prices drop globally and it takes 3 weeks to a month to get here but they go up and tomorrow its up.

    • Gas Man says:

      Sad but true…. It’s been that way for many ,many years…… and may continue for a while longer. It is called. “Controlling the market.” It’s also called “Price fixing!”

  2. Anonymous says:

    OffRed is a joke they dont know any of the facts the fuel companies do not give them or Government any disclosure of the purchase price. Government make .50 cents per gallon on the volume discharge from the Tanker ship each month and this is for propane fuel also. Both Fuel companies are internationally managed and have too many Legal lawyers beside them that make any Government tremble if any unfair practice, They just don’t fight because they don’t have the money to go to court with these giants. The retailer are charging 3oo% markup on the whole sale cost. Even our Government agent the Petroleum inspectors cant do anything, no one cant. Unless you travel to their head office and ask to see the CEO, but good luck with that, Just like Flow they will give you a 1-800 number to call

    • Anonymous says:

      6;00 am, agree with everything, but I thought the Govt. Charged 75 cents per gal duties on gasoline in Grand. Please correct me if I am wrong, thanks

  3. Fire the middle man says:

    What monitoring and oversight have OfReg allegedly provided that has benefited customers? Since the formation of OfReg the only thing I see that may have benefited customers is posting tardy listings of pump prices on their website. There was one fuel additive that is no longer in use as it was dosed incorrectly to premium fuel which caused fouling of intakes and valve seats. However this additive was only discontinued after customers with high spec engines, namely Mercedes complained about damages. Did they ever get any settlement monies out of the supplier. If not OfReg failed the customers once again. But it’s OK to keep hiring consultants on the customer’s dime while they sit and rotate on their thumbs for the vague final report. It’s high time our new premier put a stop to this redundant quango. What say you Mr. Panton?

    • Anonymous says:

      Gas prices are too high. OfReg says nothing should be done. Get rid of OfReg then and regulate gas distributors margins. Govt regulates CUC so they can certainly regulate the distributors. CUC buys diesel fuel at TexTrader published prices plus a fixed markup paid to the distributors. Do the same for gasoline prices and make the distributors sell the gas stations to the leaseholders so prices at the pumps will be competitive.

  4. Anonymous says:

    “High quality fuel options” … Really??? Where?
    As a woman I am forever grateful that I am paranoid where my car is concerned, the first day the Check engine light came on I went to the Dealer … the issue was low O2 levels in the fuel .. my dealer said … don’t buy any more XXX fuel … !!!

  5. Anonymous says:

    Why is it that Govt. and the public always focus and attack the fuel suppliers when the Govt. has always known the cost of the fuel imported by the suppliers because they have to clear customs to import their fuel and Govt. knows from the documentation submitted for the importation process. No-one ever exposes the outrageous mark-ups applied by the retailers for this has always been suppressed and the high price of fuel is always directed to the suppliers. The real problem lies with the retailers and that is why our fuel is so expensive.

    • Anonymous says:

      Hey there, that’s what regulators are meant to control. Duh.

    • Anonymous says:

      Read the report. Mark up ranges are provided. Retail markup is less than distribution to the retailers.

    • SSM345 says:

      Can we have your thoughts on the charge we get from CUC every month on our bills that we pay for transporting the fuel from JP to their compound and they themselves are in fact getting it free of charge?

    • Anonymous says:

      They pay duty based on landed volume not price. Govt. doesn’t see price.

  6. Anonymous says:

    We don’t just need profit margin controls for monopolistic importer and distribution chain, consumers also need quality assurances, including random fuel testing, pump and tank storage, dilution and filtration tests, with consequences via fines/closures for those market participants that willingly fail (and many do). All of this inaction rests on Duke Monroe who has proven via a long career at Fuel Inspectorate and Ofreg, not to care, or perhaps only to care as little as legally permissible about any of it. Do we need to ask why he isn’t blowing his whistle?

    • Earn an honest $ says:

      Just like the rest of the bunch at OfReg they seem very cushy with the ones they are supposed to regulate. Notice how the near catastrophe at Jackson Point Terminal was downplayed some years ago? The contractor responsible is still out there, with just a slap on the wrist. Elsewhere the contractor would be gone, finished, out of business. This is dereliction of duty at its highest form. And for all this bumbling around, training jollies, contracted out work and pen pushing we pay the highest price. Now tell me how does all that benefit the customers?

  7. Anonymous says:

    Can they explain the disparities between the pumps / products sold at gas stations along SMB vs the rest of the Island. Is that not price gouging?

  8. Anonymous says:

    Are the gas stations not businesses? Don’t they get to set thier own prices? How are you going to cover the businesses costs? How will they pay thier bills if you cut them out of thier profit margin? I’m not saying no, I just want to understand how it works.

    • Anonymous says:

      Consumers advocating for fuel price collusion makes about as much sense as turkeys voting for Thanksgiving.

  9. Anonymous says:

    The consultants failed to address the possibility of horizontal restraints on competition, such as price maintenance agreements or understandings between the two dominant players, not to mention vertical price arrangements between them and their retailers. It seems obvious that market forces do not account for Cayman prices.

    • Anonymous says:

      If you are wondering who has their finger on the scale, Calgary-based Parkland Fuel Corporation (TSX:PKI) bot 75% of SOL in 2018, for around 7.5 EBITDA and their local profiteer Pierre Magnon is the person to ask about all our fuel price movements. I mean, what would you do if you lost your heralded Community Service scruples, had a whack of expiring stock options, a gross profit margin of 0.59%, and knew the local regulator was a joke?

  10. Anonymous says:

    ofreg…lodge controlled review body …designed to maintain the status quo at great expense to the taxpayer.
    welcome to wonderland….

    • Anon says:

      Not good. In the interests of accountability and transparency the new PACT government could experiment with price controls since there are really limited other options that will cause high prices to budge. A unit of professionals trained to utilise robotic software in data analysis is also desperately needed. Deputy Premier seems to favour data-driven policy. It would be fantastic to see a data-driven whole of government facing team address this issue as well over hiring of expensive consultants and material report content already available online.

  11. Anonymous says:

    Suggestion: Abandon high-consumption vehicles. Cayman is small enough that an economy sedan or cross-over SUV with higher fuel economy is enough. Until we solve the public transport conundrum, the old adage is reversed: if you cannot join them, beat them at their game.

    • Anonymous says:

      Lower volumes will equal lower prices? Not sure that will work.

      • Anonymous 7:48 pm says:

        To 8:20 am: My point was not about seeking to lower prices, but rather, about ensuring we can each afford to fill up our vehicles. Control what we can, basically.

  12. Anonymous says:

    At least Ofreg should see that since the Brac Gasoline is duty free from January 2021, the duty free should be passed on to the comsuners, which its not passed on now.

    • Anonymous says:

      7:48 pm, agreed 100 percent, but i guess that would be a little work for Ofreg to look into that, and that would up set their schedule of doing nothing.

  13. Anonymous says:

    Price controls=rationing. Always.

    • Anonymous says:

      Yup. Pretty basic economics.

      • Anonymous says:

        Cayman can be like Venezuela. Cheap gas price controls but you can’t buy any, except on the black market.

      • Anonymous says:

        Except it’s not. It would only lead to rationing when the set price was above the marginal cost or there were supply in elasticities. Otherwise suppliers would simply increase supply to meet the demand since they were still making profit ( albeit less) on each extra gallon. And if it is set too low it may eliminate supply altogether- the Venezuelan scenario – rather than rationing. Whilst price controls do interfere with a free market, they can be very useful when dealing with oligopolies in which the price is not determined by demand and completion in supply. In practically terms there is little difference between being rationed and not being able to access fuel supply and having the price set at a level where you can’t afford to buy it. Which is what we are meant to have regulators for! If only they did their job of ensuring the price was at a level that generated a reasonable return for the suppliers but didn’t exploit the in elastic demand for fuel. One of those compromises in free market economics where ALL the protections of the free market – including competition and absence of barriers to entry – apply.

        • Anonymous says:

          Yeah like Cayman could actually manage that. It doesn’t even have competition laws. If government is going to set the price, expect it to double. Look at Europe.

  14. Anonymous says:

    Can someone please explain why the media compares our gas prices with those in the United States. At the pump their gallon is a smaller measure.

    • Anonymous says:

      Their dollar is smaller than yours by almost the same amount so the comparison is almost exact.

    • Anonymous says:

      The gallon is about 20% less and so is the currency so it comes out in the wash…the price difference here is roughly double the us price. It’s a good comparison to be making.

  15. Anonymous says:

    What a waste of money and time.

  16. Nauticalone says:

    “High quality fuel options”?

    Survey the Auto Dealers here and you will surely find ongoing concerns from manufacturers about the fuel quality. Especially those supplying mid to high performance vehicles.

  17. Anonymous says:

    More money to consultants telling us what we already know! Good job OfReg!
    After they spent all that money on training and flying around the world you would think they could think on their own by now…when do the training wheels come off?!
    Panton, please shut them down and use the money in your new sustainability ministry, it will give us all a much better return on our investment.

  18. Anonymous says:

    I think there should be no import duty on electric cars/ scooters, bikes. We should have had this conversation a while ago not now, gas is the past! Audi Is releasing an all electric Q4 😉

    • Anonymous says:

      There already is no duty on those things. lol

    • Just saying says:

      If everyone switched to electric vehicles it should be considered that the CI electric power grid may not have enough capacity to charge all the vehicles. Cost of fuel is always an issue. This is where CI should be looking at the financial sector for advice and guidance. When fuel was extremely cheap – say when oil was in the $30 to $40 bbl range- that was the moment to purchase long term contracts. That would buffer prices but it would take some foresight to purchase “ahead”.

      Here what is likely to happen – the Biden administration is busy closing off federal lands, waters, and other areas to US oil companies. As the world is growing out of the CV recession there will be an increased demand coupled with a decrease in supply. So, it seems very reasonable that the current price will continue to increase.
      I would hope a paid consultant at least had that much information. Buy now – the tea leaves say it ain’t getting any cheaper anytime soon.

      • Anonymous says:

        The price of gasoline at the terminal CIF Grand Cayman is not where your problem lies. You would be surprised how low it is. It is a problem, however, that OfReg and its consultants do not know what those prices are. Because duty is paid per gallon instead of by import price, the government does not know the import price, and that is why the report does not talk about it.

      • Anonymous says:

        But now and store where? 🙈

        • Anonymous says:

          You buy for future not immediate delivery… that said it’s far from as simple as the poster above implies and is ultimately a gamble on oil prices.

    • Anon says:

      Not good. In the interests of accountability and transparency the new PACT government could experiment with all options. A unit of professionals trained to utilise robotic software in data analysis is also desperately needed. Deputy Premier seems to favour data-driven policy. Perhaps he can create momentum to resolve the issue of such high prices and engage our ESO to take a lead rather than contract more expensive consultant firms.

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