Cyprus Mail
Cyprus

Ministry admits to problems monitoring fuel prices

By Elias Hazou

Under parliamentary scrutiny, the energy ministry on Tuesday admitted to deficiencies in the monitoring of fuel prices – wholesale and retail – and pledged to come up with improvements in the mechanism in two weeks’ time.

The issue of prices at the pump as well as the ‘rockets and feathers effect’ – prices rising rapidly when import costs increase but dropping slowly during reductions – was discussed at the House commerce committee.

Permanent secretary of the energy ministry Stelios Chimonas told MPs that on Wednesday he will meet with Customs to discuss how the government can obtain data on the prices of fuel shipments faster, possibly on the same day.

It’s understood that under the current system the government gets its data on fuel shipments from importers; the ministry intends instead to henceforth obtain the data directly from Customs.

The ministry is meanwhile in the process of installing software tracking retail prices on a day-to-day basis.

Chimonas said the government is taking on board the recommendations made by the Auditor-general in his 2013 report.

In the report, the Auditor-general noted that “…though there may be an impression among the public that price checks [by the government] are satisfactory, in reality no substantive checks are carried out.”

Moreover, the official red-flagged how importers’ fuel margins are calculated. Currently, the Cyprus Mail understands, the ‘reasonable profit margin’ is declared every year by each of the companies, and the government goes along with whatever figures the companies cite.

The Auditor-general recommends instead that the profit margin be determined by a government-appointed panel, which will study in detail the companies’ expenses (fuel plus operating costs) and derive an appropriate profit margin.

The official had also drawn attention to the lack of competition on the wholesale end of the market – essentially an oligopoly. And on the retail end, petrol stations are bound by contract to buy from a specific importer, meaning they cannot shop around for the cheapest price.

Chairman of the commerce committee Zacharias Zachariou told the Cyprus Mail that prices in Cyprus, before taxes, are currently about 6 cents per litre higher than the EU average.

“For the moment, we can’t say whether there’s profiteering or not. What we do want is greater transparency and better monitoring. The reason for high fuel prices may be due to the small size of the Cyprus market, smaller shipments.”

Excise duties on fuel now are 49 cents per litre, on top of which 19 per cent VAT is added. The excise duty levied by the government is not tied to sales or consumption, but is rather pre-paid at customs at the point of delivery – the bonded warehouses or tank farms in Larnaca where shipments arrive.

Oil importers here bring in a new shipment roughly once every 10 days.

The energy minister has the power to issue a decree – in force for a maximum of 45 days – imposing a ceiling on fuel prices. But energy ministry officials told lawmakers this was an “extreme measure” and ill-advised, as it distorted free market conditions.

The committee tabled the issue for discussion a day after energy minister Giorgos Lakkotrypis said he was unhappy with the retail price of fuel and basic consumer goods.

In October last year, a consumer advocacy group caused a stir when it accused the state and fuel companies of complicity in keeping fuel pump prices high, which ostensibly enables the government to collect more in taxes and corporations to rake in the profits.

Back in 2009, the Commission for Protection of Competition found that fuel companies were engaging in price collusion and unfair trade practices. The then Competition Commissioner Costakis Christoforou slapped a €43m fine on the companies.

But the probe’s findings – and the fine – never stuck because the corporations took the case to the Supreme Court, where they succeeded in quashing the probe on a technicality: they argued that Christoforou didn’t meet the necessary qualifications to head the CPC.

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