Fuel Prices, Oil And Snake Oil Politicians

Part 3: Peddling the Issue

THE fall of the cost of crude was fast and furious, and so was the cost of petroleum and petroleum products. The pass-through mechanism of three months was no longer working for consumers, for whom the prices at the pump were not changing fast enough for them to enjoy the cost savings in much quicker time. This started another deafening howl of protest, which the opposition United Workers Party (UWP) capitalized on to organize a march centred on the issue and several other issues favourable to their political interests.

Before, during, and after the UWP-organized protest march, the UWP leaders, its members, and supporters made the following claims relevant to the cost of fuel at the pumps:
• The Government was making $6.80 on every gallon of oil
• The Government is responsible for setting the CIF price of oil
• The Government is enjoying the surplus generated as a result of the time lag between successive implementations of the price of petroleum products
• If the importers are the ones enjoying the surplus, that’s contrary to the law mandating that any surplus arising from the sale of petrol be remitted to the Government

Although a government minister, a senior public sector official from the Ministry of Finance, two businessmen from the private sector, one of whom is a former president of the Petroleum Dealers’ Association, appeared on radio and television talk shows at different times to point out the fallacy of the above claims, those claims continued.

But, who was right and who was wrong? Who was peddling snake oil? Let’s examine the issue in a little more detail.

The two main pieces of legislation used to determine the prices of petroleum products are the Price Control Order, and the Excise Tax (Amendment) Act. Petroleum product prices are controlled by statute, so there is nothing arbitrary or subjective in the computation of those prices. Based on the precise wording contained in the Excise Tax (Amendment) Act, the Government cannot collect more than $2.50 plus the 5% of CIF value on every gallon of petroleum from the importers. The claim by the UWP of $6.80 being collected by the Government when the price of fuel at the pump was set at over $13.00 during the October to December, 2014, pass-through was, therefore, false given the CIF value at that time.

CIF, which stands for Cost, Insurance, and Freight represent the actual costs of petroleum, the insurance coverage of that petroleum, and the freighting of the product. The CIF value is one of the components in the final price determination of fuel at the pump. This was introduced in 2012 to replace the computation being used by the importers and handed to the Government who then had to add the profit margins of the wholesalers and retailers as well as the Government’s tax and service charge to arrive at the final cost of the fuel at the pump. In that regard, Government doesn’t set the CIF value, but quotes actual figures used by officials of the Customs and Excise Department who get those figures from legitimate documents presented by the importers. So, here, too, the UWP made a false claim.

Let’s take the other two claims mentioned above together. Is Government enjoying any surplus as a result of the time lag between successive implementations of the price of oil? And, if the importers are the ones enjoying the surplus, isn’t that contrary to existing legislation? As mentioned above, the two main pieces of legislation used to determine the price of oil are the Price Control Order, and the Excise Tax (Amendment) Act. When the price of oil is determined for a three month period, say October to December, all shipments of oil imported into Saint Lucia during that period must be sold at that price. So, again, let us assume the $10.00 cost we used in the previous article.

If the CIF component of that cost was calculated at $5.00, then regardless of how many shipments of oil are brought in during that period, the CIF value will remain at $5.00. But, if, because the cost of crude is falling (as it has) on the world market, the CIF value falls to $4.50, then to $4.00, then to $3.25 for successive shipments during the three month period, the importers will be selling the oil at the CIF value of $5.00 even though that cost is falling. Who collects the excess revenue? The importers, that’s who! The reason: there is nothing in the two pieces of legislation mentioned above, or in any other piece of legislation for that matter, that mandates that that revenue be remitted to the Government. Remember, too, that when the price of oil was escalating rapidly on the world market, the importers were taking hits on their profit margin (and thus losing money) fixed by the Government. Should we now demand that the excess money they’re making be turned over to the Government? As a result of the foregoing, we must conclude that in this regard, too, the UWP made a false claim.

In concluding, let me be clear on a central issue. In this 21st century era of advanced technology, climate change, global economic uncertainty, international health issues, global conflict, global trade agreements and their ramifications for developing states, our local leaders (especially our politicians) need to be more forthcoming with the truth. When snake oil politicians rely on people’s gullibility to deliberately distort the truth, or tell blatant lies all in an effort to gain political or other advantage, we must ask some hard questions of those people’s integrity and their suitability for some of the highest offices in the country.