Fuel consultant needed?

The hiring of a consultant to look at Cayman’s fuel industry is being met with scepticism by members of that industry.

Esso gas station

Members of Caymans fuel industry are questioning the governments decision to hire a consultant to look into the countrys gas prices. Photo: File

Last Friday at the Cabinet press briefing, Leader of Government Business Kurt Tibbetts said Government was contracting the services of a fuel consultant for one-time, 90-day ‘fact-finding mission’.

‘The consultant will gather empirical evidence of what the true costs [of gasoline] are, both to the pumps and with the operational costs,’ Mr. Tibbetts said.

‘This will allow us to have a hand on what the real mark-up is and if it’s reasonable… and if we are going to regulation, the process of doing it.’

It is uncertain how the consultant will conduct his 90-day mission, but it is assumed he would have to at least interview gasoline wholesalers and retailers while here.

Some in Cayman’s fuel industry expressed doubt about the usefulness of the exercise.

J. Alan Neesome, the country manager of Esso Standard Oil in Cayman – one of two suppliers of gasoline here – said he did not know about the engagement of the consultant. He also said he had met with Mr. Tibbetts this Monday and he had not mentioned the consultant.

Mr. Neesome said the price of gasoline in Cayman was not a margin issue and was caused by external factors.

‘Domestic price changes are driven by international variations,’ he said. ‘Neither local government nor local oil companies are responsible for current high fuel price and the volatile situation. The Cayman Islands is exposed to the well-known and the highly publicised world situation.’

Mr. Neesome said that important factors currently influencing fuel prices included the conflict in the Middle East and the very tight world supply/demand situation.

‘Esso doesn’t share the idea that a consultant is needed,’ Mr. Neesome said. ‘Esso hasn’t been asked to participate in this exercise. As soon as we are invited, we will analyze it.’

Johnny Brown, owner of Brown’s Esso in Red Bay and in the Industrial Park, said he would not allow a consultant to inspect his accounts if he were asked.

‘It’s none of their business, to be honest with you,’ he said. ‘It’s a private business and they don’t have a right to do that.’

Mr. Brown said a consultant would not find any price gouging going on by fuel retailers in any case.

‘My [gasoline] mark-up is based on cents per gallon, not a percentage,’ he said. ‘The higher the price of gasoline, the worse for me, really.’

Mr. Brown said when the price of gasoline is higher, he has to make more capital investment to purchase it and that consumers try to conserve gas as a result.

In the meantime, other business costs are rising.

‘I have to pay $9,000 – $10,000 in utility bills monthly and Government keeps adding to the costs of doing business. Now work permits cost more,’ he said.

Mr. Brown pointed out many reasons why the price of fuel here should not be compared to the prices in the United States.

‘[Cayman’s] population base is small,’ he said. ‘The volumes are not there. But we still have to have the same infrastructure to do business and construction costs are a lot higher here.’

In addition, Mr. Brown said gasoline is sold by the imperial gallon here, not the U.S. gallon.

‘If we switched to the U.S. gallon, the price would reduce by 20 per cent.’

Mr. Brown said he did not know what benefits could be derived from having a consultant look at the oil industry here.

‘It’s not going to make any difference in the price of fuel,’ he said.

Albert Hislop, the owner of Savannah Texaco, said he did not have a problem talking with the consultant.

‘I’m only allowed [by Texaco] to make so many cents on a gallon anyway,’ he said. ‘That’s the way it’s been for nine years.’

Mr. Hislop said he that because he sells gas at a price lower than many of his competitors, he earns a good deal of his revenue in volume sales. In addition, he said a good portion of his profits come from the sales of food and other merchandise in the store component of his station.

Like Mr. Brown, Mr. Hislop has to cope with higher costs of operation.

‘I paid over $1,500 in [electricity bill] fuel surcharge alone last month,’ he said. ‘I don’t make as much as many people think.’

Mr. Neesome warned about introducing government regulation in the fuel industry here.

‘All regulated markets, in general, have higher pump prices,’ he said. ‘Governments shouldn’t introduce long-term, sudden, unexpected changes in the regulatory framework aimed at offsetting problems like the current volatile pricing situation.

‘Companies make investments based on long-term and stable regulatory rules and consumers are best served by allowing market forces to determine fuel prices.’

Mr. Neesome said that consumers in countries with deregulated oil markets benefit by receiving secure fuel supplies of quality products at competitive prices.

‘Government should not backtrack on these important gains as a political response to recent volatility in crude oil prices and finished products,’ he said.