Kevin Ramnarine
The distribution of premium gasoline, super gasoline and diesel impacts the national welfare and supports all forms of economic and social activity. The economic viability of this supply chain is not something to be dismissed or ignored by the Government.
Distribution starts at the refinery in Pointe-a-Pierre where Petrotrin sells to the two wholesalers, National Petroleum (NP) and Unipet. They then sell to peddlers and to gas stations. The peddlers sell diesel to companies with large fleets or to companies in the construction sector. The issue is therefore not only a "gas station" issue but it speaks to the wider viability of NP and Unipet and the peddlers. All these entities will tell you that their margins (which are regulated by law) are now insufficient.
NP, Unipet, the peddlers and the gas stations support a network that sold 1.28 billion litres of liquid fuels in fiscal 2015. Fuel for the motoring public is distributed via road tank wagon to approximately 170 service stations located in both the rural and urban areas. While some of these stations are under the direct control of NP and Unipet, the majority are controlled and operated by dealers who belong to the Petroleum Dealers Association (PDA).
In recent weeks the PDA has been saying to the Government that the retail margins that they have to operate with are insufficient. The retail margin for premium gasoline is 17 cents per litre, for super gasoline it is 17 cents per litre and for diesel its 12 cents per litre. The industry stakeholders have not made out their case by marching in front of the Ministry of Finance but via the submission of a comprehensive study to the Ministries of Finance and Energy.
What does the PDA want? Prior to fiscal 2016 most gas stations were making small profit margins on the sale of fuel. While the situation was not ideal they were keeping their heads above water. In 2016, the Minister of Finance increased the Business Levy and Green Fund Levy by 200 per cent.
Business Levy and Green Fund Levy are charges on the gross revenue of a company (they come off the top line). At the same time the profits of the gas stations remained the same since their profit is calculated not as a percentage of revenue but in cents per litre.
As an example, prior to 2016, a typical gas station that sold 454,000 litres of fuel per month would have paid TT$35,000 per year in Business Levy and Green Fund Levy. The same gas station must now pay $150,000 per year under the new rates and given the new prices for fuel at the pump. This increase has chewed away the slim profit margins that previously existed. T
o further illustrate the issue, when you spend TT$100 dollars on super gasoline, the gas station owner is left with TT$3.95 (after the Levy deduction) from which he must cover the cost of operations.
Note too that the retail margins have not been adjusted since 2005 and since that time the cost of everything has increased. In a typical business if cost increases the businessman can either become more competitive by becoming more efficient or pass the cost onto the customer. The local gas station sector has exhausted cost-cutting measures. One final cost-cutting measure is the elimination of electronic payments via linx and credit cards. While this might be seen as a retrograde step, for many gas
station dealers it is a matter
of survival.
Price control and margin control can never lead to efficiency. The consequences of price control in socialist economies have been disastrous. It leads to loss-making state companies, shortages, market distortion and the black market. Is it therefore that the current socialist-oriented model for the wholesale and retail of transportation fuel to the population has run its course?
With regard to the fuel subsidy, the Minister of Finance is clearly prepared to bite the bullet. He has tackled the subsidy head on. The effect is that we have seen the subsidy collapse from TT$4.1 billion in fiscal 2014 to TT$510 million in fiscal 2016. The collapse in the subsidy is due to falling international oil prices and the increase in the price at the pump.
This means that the burden on the back of the Government has been significantly relieved. Given that the burden of the subsidy has been largely removed and considering the wider national interest, the Government should give consideration to the request of the PDA for an increase in the retail margins for all three transportation fuels. It should be noted too that the Government already collects from this sector: excise duties, VAT, corporation tax, green fund levy and business levy.
The Government can also opt to pretend that there is no problem. Such a move will mean that the smaller gas stations that have low volumes and are located in rural areas will be the first to close down. The larger stations with convenience stores will be in a better position to survive. The other consequence is job loss. The service stations employ close to 2000 people and perform a critical service. The ball is in the court of the Minster of Finance and the clock is ticking.
Kevin Ramnarine is a former Minister of Energy of T&T