The price of ‘price regulation’ is too high

Gasoline prices in the Cayman Islands continue to cause consternation with the public and, by extension, the government.

The crux of the matter, as Planning Minister Kurt Tibbetts put it in a statement in the Legislative Assembly last week, is that local gas prices seem to go “up like a rocket, and down like a feather” in response to fluctuations in international oil prices. When international prices rise, the perception is that prices at the pumps in Cayman rise very quickly. Yet when prices fall overseas, it sometimes takes months for the prices to make similar drops here.

With the high cost of living an issue affecting a large segment of the voting population, politicians such as Mr. Tibbetts are always trying to find ways of addressing the hot-button issues. That’s what they’re elected to do.

Regarding current gasoline pricing fluctuations, the first thing the legislators plan to do is to present a Public Utilities Commission Bill to the House in September. If enacted, this legislation would create a commission – yes, yet another body of political appointees – to regulate all of the local utility industries, including electric, telecommunications and water. Gasoline, which is typically traded as a commodity, will get lumped in with the utilities as part of the bill, which will then require local petrol distributors to reveal what they pay for bulk fuel shipped to the Cayman Islands and their markup to local retailers.

If the markup is deemed unfair or that Cayman’s current two fuel distributors aren’t actually in true competition with each other, then Mr. Tibbetts suggests the next step would be “outright market price regulation.”

This is where we say “Whoa. Stop right there.”

Price controls in a free-market society are a very dangerous step toward a government-controlled society that ignores basic free-market economic principles. This would be a major step – and a misstep – for the Cayman Islands.

Mr. Tibbetts is assuming that the problem lies with the distributors, but, by his own admission, he doesn’t know what their markups are. In other words, he might be wrong. What if the problem really lies with the profit margins of the retailers? Would the government be so bold as to institute price controls – or, more precisely, profit controls – on members of the voting public?

Certainly no one wants to pay more than they should for gasoline, but ultimately Cayman is a free-market society, and people are free to choose to pay the going rate – or not – just as they are free to choose to own gas-guzzling trucks and SUVs, or not.

That’s not to say there aren’t remedies for the government to address the high gasoline prices while still adhering to free-market concepts. Government could, for example, license additional distributors who are hungry for market share and will reduce their profit margins to achieve it. Or government could reduce further the amount of import duty they charge on fuel and make up the lost revenue in a less-regressive way that does not affect as many lower- and middle-class workers.

If they find that there is price collusion occurring between the fuel distributors, they could enact legislation similar to other countries, making that practice illegal.

But what the government should not be doing is setting prices of commodities. It should let the market and the economic principles of supply and demand determine the prices, and create a fair, competitive environment that encourages fair profit margins.



  1. Absolutely correct. More gasoline importers are needed to increase competition.

    Is there any evidence of collusion or price-setting between the two current distributors?

    Meanwhile our gasoline prices are still lower than in Europe, where a gallon of unleaded is about $5 KYD.

  2. I”m used to the Compass editorial board being anti-government and anti-regulation at every possible turn, but this editorial borders on ludicrous.

    Quite simply, the gasoline import and sale industries are a monopoly, and regulation is needed.

    Saying that Cayman is a free-market society is misleading. Cayman is a small nation, with two major petrol stations. There is no genuine "free market competition" to drive prices down. There is no true competition between the retailers. The Compass says "people are free to choose to pay the going rate – or not." I don’t think there has ever been more blindly oblivious comment written in this paper. It’s correct that people can choose not to buy gas for their cars, but that means not driving, not going to work, etc. There’s really no choice when it comes to gas – you have to fill up the tank. It is not a product you can simply choose not to buy because the prices are too high.

    The Compass asks if the government would institute price controls if the problem lies with retailers – I would hope the answer would be a resounding YES! No one claims that the retailers aren’t entitled to make a profit, but it must be a reasonabl profit. If they are taking a profit of $2.00 per gallon when they are selling gas for $5.00 per gallon, that profit is excessive, and government should step in to regulate.

    Talking about a free-market society is all fine and good, but there needs to be legitimate free-market forces at work – no collusion between retailers (or distributors), and significant competition to drive down prices. When there are two choices – Rubis or Esso – and there is no incentive for them to lower prices to create competition, that doesn’t add up to legitimate free-market competition.

  3. You comments in a bigger market are spot on! But in the Cayman Islands there is not a free-market for the retail sale of gasoline – or a free market at all. And having consulted with some economics professor friends in the USA, they too would agree.

    Free-market means a low cost of entry, low regulations and an easy to start business. Retail fuel sales is anything but; there is no capital market in the Cayman Islands to support new entrants; you are required to be Caymanian or have a work permit (very high barrier) and there is limited space remaining. When you look at the fuel market in this country, everything points to a market that can easily be manipulated for the wrong reason.

    A fair, intelligent and transparent regulator can provide a lot of assistance without killing the profitability. The problem is we do not regulate well. There is no transparency, no public involvement and little confidence by the business community. This might be an easier problem to solve.

    As far as Europe goes, their price difference is solely due to taxes. Taxes in some EU countries represent 50 percent of the fuel price. (This is also what drives the disparity in the USA, high tax states and low tax states for fuel.)

  4. Maybe a way to do this would be a "windfall" duty.

    In effect if the company makes excessive profit not from the import and sale of fuel, but from not passing on savings arising from market fluctuations, there could be an additional duty on that profit.

  5. In response to the perception that when international prices rise, prices at the pump rises very quickly. On the other hand, when those prices fall overseas it takes months for prices at the pump to drop. One hopes that increased prices are applied to new shipments of gasoline only and not while gas is still available at the old price. This is worth ensuring to protect consumers.

    One of the major problems in Cayman is the humongous, thirst-master SUVs and pick-up trucks on the narrow roads in the island. Bigger is not better here. These gas guzzlers demand more gas than other types of vehicles. Therefore demand for gasoline will aways be greater. The distributors love it as they smile all the way to the bank. Also, government gets more import duty it charges on fuel. But, as the editorial stated, people "are free to choose to own gas-Guzzling trucks and SUVs." I believe that Government should be aware of the mark-ups distributors make. The public (I think) is aware of the amount of import duty government gets.

    Bye the way, oil prices have been plummeting for the past several weeks now hovering around US $43-45 per barrel. This should translate in lower gasoline prices at the pump. Perhaps by year”s end, if not after.