Warning that government overreach can “cause more harm than good” in certain instances, Cayman Islands Finance Minister Marco Archer warned opposition MLAs against the rush to implement fuel price controls in the local petroleum market.
Mr. Archer’s comments came during the Legislative Assembly debate of the Fuel Market Regulations Bill, 2016, which was passed Monday afternoon by a majority of assembly members – including opposition groups.
However, several MLAs opined during their debates that the legislation “didn’t go far enough” and that the time for government to set direct price controls had come.
Mr. Archer told members to be careful what they wished for.
“Whilst we want to ensure that we prevent collusion … if there is such a thing going on,” Mr. Archer said, “the important thing is everyone that establishes a business or [who] invests in a business makes a profit.
“The government is not in the business of supplying fuels,” the minister said. “We do a bad enough job at the government department of vehicles [referring to the Department of Vehicle and Equipment Services].”
Mr. Archer’s comments referenced a scandal that was revealed at the government fuel depot in 2010 where a number of questionable transactions occurred on public sector-issued fuel cards. It was later determined that some of those purchases were fraudulent.
If government reached the point where price controls made it unprofitable for private sector companies to operate and they subsequently “closed up shop,” Mr. Archer said, Cayman would essentially have just two options to service its energy requirements.
The first option, he said, would be government getting into the fuel supply business, in which it currently has little experience. “The government will not be an efficient supplier of fuels,” Mr. Archer said.
The second option would be another private sector fuel supplier entering the market to fill the void left by the departed suppliers.
“[That supplier] now has the government between a rock and a hard place,” Mr. Archer said. “Who is in the stronger position then?”
It was mainly for those reasons that the Progressives-led administration decided against the immediate enactment of price controls in the fuel market, Mr. Archer said.
Under the fuel regulation bill, the newly created Utility Regulation and Competition Office will be given “significant market power” to determine whether competition among distributors and retailers “truly exists in the fuel market.” If the market is not determined to be competitive, the regulator is authorized to ensure there is “suitable competition,” Planning Minister Kurt Tibbetts said.
“If these measures fail, then the next step, in consultation with Cabinet, will be outright market price regulation,” Mr. Tibbetts said. “These various steps … must be taken before taking the nuclear option. That option will be used when it is determined … that collusion is taking place.”
During 2015, when debate over Cayman’s gasoline prices reached fever pitch, local petrol distributors also warned the government about taking unsustainable control of the fuel market.
“Government’s attempt to limit profit margins may limit Esso’s availability to make necessary investments and could be detrimental for the country dealers and ultimately consumers,” Esso Standard Oil Ltd. Country Manager Alan Neesome said.
“Many people assume wholesale or retail regulations protect consumers from higher prices,” Mr. Neesome added. “More often, however, such market distortions undermine service, supply and reliability by encouraging gasoline consumption and discouraging investment. Moreover, the government, through a regulation, will not prevent international price variations from influencing or impacting local prices.”