Cyprus Mail

‘Battling the scourge of fuel price distortions’

By Angelos Anastasiou

THE GOVERNMENT, in cooperation with consumer groups, is planning to tighten the noose on the scourge of distorted fuel pricing, and possibly introduce an electronic platform where the public could monitor prices in real time.

The state has come under increasing pressure to do something about the phenomenon whereby petrol prices are jacked up instantaneously when global oil price rise, but by contrast, reductions in the price of crude typically take weeks to translate into lower prices at the pump.

Commerce, Industry, Tourism and Energy Minister Giorgos Lakkotrypis hosted a meeting yesterday attended by representatives from parliamentary parties, consumer organisations, the audit service, legal services, and the department of information technology services to come up with a way to call a halt to the never-ending rip-off cycle.

“What is important is the transparency we want this effort to have so that consumers can understand where we stand, what their options are, what problems and weaknesses we are dealing with, and how we plan to remedy them,” Lakkotrypis said.

He told participants in yesterday’s meeting that his ministry was preparing criteria and parameters to monitor the wholesale fuel market, as well looking at the suggestion for an electronic platform informing consumers of fuel prices in real time, in a bid to remedy the distortions.

“We had an honest discussion on the problems facing consumers with regard to fuel prices,” the minister said, adding that the ministry proposed some short- and medium-term measures to eliminate the problems.

He said that during the meeting the ministry’s actions so far were presented, including a slashing of the time it takes to cost new shipments from the current 30 days down to four days so that price changes could be implemented more quickly on both ends of the scale.

“There are other measures being implemented, like the definition of criteria and parameters to be used in monitoring the wholesale market, as well as a suggestion to implement an electronic platform facilitating consumer access to real-time fuel prices,” he said.

While acknowledging weaknesses in the system, Lakkotrypis pointed out that efforts at improvement were being made, announcing the creation of a committee, which will feature consumer organisations, that will follow implementation of the measures, or others that may be proposed along the way.

Giorgos Stylianou, of the Cyprus Consumers Association (CCA) said after the meeting that consumer bodies had pressed the need for speedier implementation of the measures agreed to, and hailed the creation of a monitoring committee as a step in the right direction.

“Fuel prices are an extremely sensitive issue to the Cypriot public, on the one hand because of the lack of an effective public transport system, and on the other because fuel prices directly impact the price of many other products and services,” he said in a statement.

The statement added that during the meeting the association also noted that on the issue of acceptable cost and profit by oil companies and gas stations, they had been informed of no developments as of yet, other than the fact that the ministry is looking into the issue with the audit service.

The CCA pointed out that ambiguity in legislation governing profiteering must be replaced by specific provisions that will allow for more effective monitoring of fuel prices.

“Finally, we asked that consumption tax and value-added tax policies are re-evaluated,” he said.
Asked to comment on rumours that the government was keeping prices high to earn more taxes, Lakkotrypis said the syllogism is “completely false mathematically, since taxation on fuel prices is levied on quantities, not price”.

“We showed some slides in the meeting, comparing prices in Cyprus with prices in Europe, showing that before tax we compare negatively with the EU average, whereas after tax we fare better relative to the same yardstick,” he explained.

“This indicates that the government’s tax policy on fuel compares positively to the rest of Europe,” he added.

Lakkotrypis said the government was not looking at lowering taxation on fuel at this time, repeating that taxation was levied on quantities and not price.

Asked whether the presence of legal services at the meeting may suggest possible legislative amendments, the minister said that some of the measures under review required some legislative adjustments, like direct access to information for the public.

Commenting on whether the measures might create savings to consumers any time soon, Lakkotrypis said yesterday’s meeting was designed to discuss the weaknesses in the system, the problems faced, and the solutions the ministry proposed.

“We have the support of parliamentary parties and consumer organisations, there are some measures that can be implemented immediately, and there are some that require more time, like improving the competitive field,” he said.

In January, after months of falling, the price of crude climbed from $45 per barrel to near $50. Almost overnight, petrol stations in Cyprus jacked up their prices by 10 cents a litre. When the price fluctuations are reversed, it takes weeks to see a difference on the ground.

The CCA’s Stylianou on Monday cited the auditor-general’s 2013 report, where the official had flagged the way importers’ margins are calculated. Currently, it is understood, 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 recommended 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.

He had gone on to note 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.”

In mid-January, the Commission for the Protection of Competition launched a sector-wide probe to determine possible market distortions. The probe is not directed at any particular fuel wholesaler or retailer and needs more time to be completed.

Currently, detailed questionnaires have been sent out to petrol stations as well as importers.

In October last year, a consumer advocacy group accused the state and fuel companies of complicity in keeping fuel pump prices high, which ostensibly enabled the government to collect more in taxes and greedy corporations to rake in the profits. Pump prices started falling shortly after, which reduced the cost of electricity and industrial production but failed to translate into commensurate reductions in the price of consumer basics.

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