Fuel mark-ups revisited

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The recent hike in fuel import tariffs has put the issue of
how much diesel and gasoline prices get marked up in Cayman on the front burner again.

The 25-cent rise in customs duty for both gas and diesel
represents a 50 per cent increase in gas import tariffs. The percentage
increase is less for diesel, which has a slightly higher duty per gallon
imported.

Starting last week, import duty for gas went to 75 cents
per gallon; for diesel it went up to 85 cents per gallon.

The increase is expected to lead to higher prices at the
pump, but Premier McKeeva Bush has asked retailers to stave off that price
increase to help the country through a difficult economic time.  In the Legislative Assembly last week, Mr.
Bush revealed some details of a fuel pricing study done in 2006 to help support
his case.

According to the premier, the study revealed that Cayman
government duties on petrol were among the lowest in the entire Caribbean. Mr.
Bush said the 2006 study found that duty payable to government, measured as a
percentage of wholesale gasoline costs, was about 15 per cent in Cayman.

The regional average was 26 per cent, he said. That means,
for most of the Caribbean, government taxes accounted for about one-fourth of
the wholesale gas costs.

For diesel, the percentage of duty to wholesale cost was a
bit lower Caribbean-wide. It was about 20 per cent of the wholesale costs,
according to the 2006 study. 

Despite the lower fuel import duties in Cayman, Mr. Bush
said the fuel mark-up – the amount the price changed going between the fuel
wholesalers, distributors and local retailers – was among the highest in the
world, according to the study.

The premier noted the 2006 fuel price study stated that
“the (previous) government recognises the potential exists to reduce
margins”. 

“As the price of fuel has increased over the years, the
government’s take has decreased,” he said.

Mr. Bush gave an example of the overall local mark-up from
more recent fuel prices.

Prior to the increase in petrol import duty that went into
effect on 1 July, Mr. Bush said the local mark-up was still quite high.

“In the case of gasoline, the current local markup is $1.78
per gallon,” Mr. Bush said. “This markup is on a cost, insurance, freight
(c.i.f.) value of $2.23 per gallon. This constitutes very healthy margins,
which can be reduced in these times in the interests of the country.

“Most of this local mark-up…is obviously profits in the
businesses at the distribution and retail stages.”

Cayman’s Chief Petroleum Inspector Gary McTaggart said
retail mark-ups varied between 60 cents and 88 cents per gallon in June 2010.

“But, remember, these are gross margins that do not include
operating expenses,” Mr. McTaggart said.

The Caymanian Compass asked Mr. McTaggart if the remaining
local mark-up – somewhere between 90 cents and $1.18 – was due to the fuel
companies that distribute petrol to the Islands. He said he could not provide
those figures.

“This information is considered proprietary by the oil
companies and we cannot legally get that information,” he said.

Gas station owner Osbourne Bodden said stations usually
make about 60 cents to 70 cents per gallon sold, depending on operating costs.

“All stations are struggling in this tough economic climate
and many owners are subsidizing their stations with the ever increasing cost of
doing business,” Mr. Bodden said.

The premier’s office said it could not provide an exact
breakdown of the $1.78 mark-up Mr. Bush referenced in the Legislative Assembly.

“That
figure is the difference between the c.i.f import value of the $2.23 plus the
government import duty of 50 cents and the $4.51 that it retailed for at the
time the figures were taken,” read a statement from the
premier’s office.

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Prices at the pump are going up.
Photo: File
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1 COMMENT

  1. The average US markup per gallon is between 9-30%. Meaning if the local base cost is $2.23 per gallon – the retail price would be between $2.45 and $2.87 per gallon.

    Our local retailers are charging an average of $4.00 per gallon – or 25% more than the highest markup charged by any US retailer.

    Do a little research on Google you will see that gas retailers in the US make 10 cents a gallon, NOT $1.75 per gallon.

    Plain and simple this is robbery.

    The government should mandate a fuel surcharge of 75 cents per gallon on retailers but mandate that they not be allowed to pass this on to the consumer.

    Not that by placing this tax on retailers, the CUC would be exempt.

    At the same time, remove import duty on any hybrid vehicle and increase the duty on conventional vehicles.

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