The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

Petroleum retailers yesterday warned the industry could “implode” unless the Government urgently adjusts the price-controlled, fixed margin business it has laboured under for decades as gas prices breach the $7 per gallon mark.

Vasco Bastian, the Bahamas Petroleum Dealers Association’s (BPDA) vice-president, reiterated to Tribune Business that high global oil prices have left the sector in “crisis” mode while predicting that gasoline prices will exceed $7 per gallon by week’s end at all three distribution chains. Esso is already at $7.39 per gallon.

“The other stations typically lag behind Esso,” he said. “Apparently, for Rubis and Shell, their freighter wasn’t in and they were supposed to be offloading their product. They should be changing shortly. So if Esso changed last Friday, the other brands should be changing by this week or early next week.

“This is not the time to be in the gas station business. During the pandemic, despite the less hours and all of the other stuff, because oil was so much cheaper than during the pandemic we weren’t as bad as we are now. But I don’t think that the Government thinks that we’re bad off. People who are not in the industry don’t understand the industry. I just don’t think the Government understands the crisis.”

Petroleum retailers and the Government have met on separate occasions in recent months in response to the former’s plea for some relief from the industry’s prevailing model. However, the only two factors that the Government can influence are the taxes it earns per gallon of gas and diesel sold, which are understood to be around a flat $1.10 plus 10 percent VAT, plus the retailers’ fixed, price-controlled margins that have made the industry a volume-driven business.

The retailers currently earn a fixed $0.54 per gallon margin on gasoline, and $0.34 for diesel. These figures do not change when gas prices go up, meaning that gas stations face having to pay the wholesalers - Rubis, Esso (Sol Petroleum) and Shell (FOCOL Holdings) - more to purchase their fuel inventory despite their own net per gallon revenue staying the same.

The increased turnover thus results in gas stations paying higher Business Licence fees while revenues remain the same, helping to push gross margins in some instances below 10 percent. Retailers still have to pay staff, rent and other expenses from that depressed gross margin, with the increased cost of fuel straining cash flows and credit lines. Increased use of the latter also results in higher bank fees and such like.

Retailers have urged the Government to increase their margins by up to 50 percent to help compensate for the higher oil prices. This would raise their margins by 27 cents per gallon of gasoline sold, taking them from 54 cents to around 81 cents.

However, Senator Michael Halkitis, minister of economic affairs, has ruled out a margin increase - especially at this time - for fear of adding to the burden for already hard-pressed consumers who are grappling with surging inflation and rising living costs. Petroleum retailers had nevertheless hoped some relief for their sector would be unveiled in the Budget, but none was forthcoming.

Mr Bastian likened the current predicament facing himself and other retailers to a “hand grenade” where “the pin is slipping out and they have no control over keeping the pin in because the price of fuel continues to rise. So one day, the pin will just slip out and the whole industry will implode”.

He added that this implosion would result in some retailers being unable to buy gasoline from their wholesaler suppliers because there is insufficient finance to afford the purchase. “I don’t think the Government is taking this serious,” Mr Bastian said.

“There won’t be a shortage in regards to the inventory on the island, but there will be a gas shortage at the various different brands because what will happen is it will become more difficult to buy the fuel that the wholesalers have to sell.

“The wholesalers have the fuel but the dealers buying that fuel is becoming a challenge, and it will become a challenge if the Government doesn’t intervene and recognise that the economic model dealing with gas operations in The Bahamas is 30 years-old and it cannot be used any more.”

Mr Bastian added: “Simon Wilson (the Ministry of Finance’s financial secretary) has been nothing but five-star in this whole ordeal. Simon Wilson understands the plea, and he is a man who knows the economy. He knows this down to a science. Simon Wilson has been sympathetic and empathetic to the dealers from day one, and Prime Minister Davis has been accommodating.”