The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

PETROLEUM suppliers are urging the Government to increase price-controlled margins that have remained unchanged for 20 years so they can better cope with escalating costs.

Raymond Samuels, Rubis’ managing director for The Bahamas and Turks and Caicos, told reporters that “the regulated margin for wholesalers has been around for over 20 years” without any increase while the cost of doing business has risen significantly over the same period.

Speaking at the 10th anniversary celebrations for Rubis’ entry into the Bahamian petroleum market, when it acquired Texaco’s downstream business and assets, he said: “We under wholesale haven’t had any adjustment in our margin for over probably 20 years.

“It has been 33 cents per gallon on the gasoline, and 18 cents roughly on the diesel. As you know, the cost of doing business has certainly escalated over the years, not to mention the impact of COVID… The logistics costs we see, steel prices and so on going up, so our capital costs have gone up pretty significantly. So we hope at some stage there’ll be some kind of improvement to that margin.”

While this is a decision for the Government, Mr Samuels added: “We certainly believe that the margin should keep pace with the cost of doing business, so it should be assessed and analysed over time to allow for investors like ourselves to really accomplish a reasonable return on investment.

“We really think that there needs to be a balance. Timing is important, of course, and we do understand the high price environment and customers certainly feeling the impact, so I think timing is going to be of the essence. But we do anticipate that at some stage we’ll have an assessment of the wholesale margin so we can have better alignment with the increase in the cost of doing business and return on investment.”

Gas station operators are thus not the only segment of the petroleum industry seeking an increase in their fixed, price-controlled margins to compensate for increasing business costs that have escalated amid the post-COVID inflationary surge.

Dealers had initially sought a 50 percent increase in their gasoline margins, which would have resulted in a 27 cent per gallon increase from the existing $0.54 to $0.81. They subsequently engaged in talks with the Government to seek relief from the squeeze imposed by the fixed, price-controlled structure as global oil prices surged close to $130 per barrel earlier this year, but no conclusive outcome was ever reached.

Michael Halkitis, minister of economic affairs, quickly ruled out any increase in dealer margins due to the perceived negative impacts this would have on consumers already grappling with soaring inflation. And, given present market realities coupled with the Government’s position, it appears unlikely a wholesaler margin increase - which would also benefit Shell (FOCOL Holdings) as well as Esso (Sol Petroleum) - would be granted with gas prices still near $6 per gallon.

Mr Samuels said it is impossible to forecast how global oil, and gasoline prices, will move but the fast-approaching winter in the US and Europe is set to increase energy demand yet again. Mr Samuels added: “It’s difficult to predict. We do see the trend in the middle distillate on the Platts side. Prices are creeping up. But how far up we can’t say.”

COVID-19 impacted Rubis and the petroleum industry like all other economic sectors, but Mr Samuels said The Bahamas appears to be rebounding even in the face of rising inflation. “Fuel is perhaps one of the most transparently traded products on the international market,” Mr Samuels said. “The price of product on the international market is a function of supply and demand, and certainly incidents like the war in Ukraine impacted supply and demand.

“So, unfortunately, it has affected the business internationally. We are part of that; that ecosystem. We are price takers and, as you know, The Bahamas is a regulated market. So if we acquire on the international market at a higher price, that price goes through to the market. But, you know, we hope that some day that price would certainly stabilise and so that can provide some ease to our customers.”