Why Fuel Prices Remain High

RECENTLY the Government provided its position on the reason the price of fuel has not changed significantly even with the major decreases in the price of crude oil on the international market. However, the Government Press Secretary failed miserably to fully explain the reason that this has occurred. In November 2013, Mr. Everistus Jn Marie was interviewed by Ms Jada Brown, a reporter attached to HTS, on the method behind fuel prices. It was a most instructive interview.

Jn Marie made some very critical points in that interview. He very correctly stated that the respective parties need to be more forthcoming in informing the public and consumers on the reasons behind the cost of fuel. I fully concur, and must state that the government has to do more to ensure that there is transparency in the energy sector. The Ministry of Commerce and the Ministry of Sustainable Development must take up this responsibility. The consumer needs to know the wholesale margin, the petroleum retail dealer’s margin, and the taxes to government and any other costs associated with the price of fuel.

Jn Marie went on to state in that interview, that the reduction in excise duty implemented by the present government was significantly less than the increases in the actual cost of fuel entering the St Lucian market. When the St Lucia Labour Party was in opposition they enunciated that as a policy shift there would be a reduction in the excise tax to bring relief to consumers. This policy was implemented, thus there was a decrease in the tax. Jn Marie’s point in November 2013 was that this decrease in tax was swallowed up by the increase in the imported price of fuel.

The St Lucian public has now been advised that government has limited influence over the price of fuel at the pump, and the only measure of taxation is the excise tax. This excise tax is now at $ 2.48 per gallon. So to put in perspective what we have been told, the minimum reduction of price available by government intervention would be $ 2.48, and that would occur if government says we will take no taxes. If the price of crude oil fell to $ 10.00 US / barrel, we can only see a reduction in the price of $ 2.48 by government intervention.

The discussion comes down to who is benefitting at this stage of low oil prices, who is making the windfall and if government is not the beneficiary, can the government use persuasion to allow these beneficiaries to pass on their huge profits to the consumer. On the local scene are the retailers and the wholesalers of fuel. The two major wholesalers of fuel are SOL EC Ltd and RUBIS West Indies Ltd, and we then have the various Petroleum Dealers.

Is it an undisputed fact that the Government of St Lucia has not benefited from the reduction in the cost of fuel? Is it also a fact that the government has no control over the price of the products imported into St. Lucia?

Let us take a journey with a gallon of gasolene. It arrives at BUCKEYE Terminal at a price determined by the international market. government takes its excise tax of $2.48 / gallon immediately as the fuel arrives in St. Lucia. This fuel is sold to the Wholesalers with a fixed margin per gallon, in our case either SOL EC Ltd or RUBIS West Indies Ltd. The retailers then sell the fuel at a price determined by government to the consumers with a fixed margin per gallon.

If the above is correct then whatever the price of fuel on the international market, the mark up for retailers and wholesalers remains the same. The government has stated that their sole take will be the excise tax of $ 2.48 per gallon. Simple mathematics would thus suggest that the only variable ought to be the price of fuel landed at the BUCKEYE Terminal.

Let us put some numbers to these, let us assume that the price of fuel landed at the terminal in January is $ 7.00 / gallon CIF, government takes $ 2.48 as excise tax, the wholesaler takes $ 1.10/ gallon, the retailer takes $ 1.05 per gallon. The price to the consumer thus becomes $ 11.63/ gallon. Suppose the price of fuel drops down in February to $ 5.00 / gallon but the price remains fixed by government for the three month period, there is an extra $ 2.00 / gallon that is collected either by the retailer or the wholesaler. Who pockets this extra $ 2.00 / gallon?

Let us take it in reverse, if the price goes up by $ 2.00 / gallon who has to pick up this cost. If we are being told ever so often that the government has been lowering their take on the excise tax to not allow fuel prices to soar, and then it is the government who picks up the cost of the higher prices.

Herein lies the confusion: if government revenue is used to subsidize the increase in the cost of fuel, why should government revenue not be boosted if there is a decrease in the price of fuel. I have no issue with the government being the beneficiary of the reduction in the cost of fuel, but I would be very opposed for the retailer or wholesaler to be the beneficiary. Someone needs to unravel this conundrum.

I would suggest that the taxes on fuel be placed in a dedicated account to maintain the nation’s infrastructure. I also do not believe that fuel should ever be subsidized; such a transparent approach would be prudent.