OfReg chief: Don’t discourage fuel market competition

The Cayman Islands fuel market would be better served by additional competitors rather than outright price controls, the territory’s chief commodities regulator told lawmakers last week.

OfReg President J. Paul Morgan appeared before the Legislative Assembly’s Public Accounts Committee Wednesday, where committee members queried what had become of a 2017 effort to lower local fuel prices.

Prices at the pump in Grand Cayman rose between 10 and 20 cents per gallon during April, according to figures on OfReg’s website.

Public Accounts Committee Chairman Ezzard Miller said the purpose of the Fuel Market Regulation Law, approved in March 2017, was “sold to the public” as the “only sure way of regulating fuel prices.”

A year later, Mr. Miller said it seemed little progress had been made, with prices at the pump rising again as summertime approached.

“What seems to happen uniquely in Cayman is when we get competition, on the fuel side and the [information technology] side, there is minimal competition and we get what I call a multi-headed monopoly,” Mr. Miller said. “The government doesn’t seem to be prepared to intervene by protecting the public to help lower prices.”

Government intervention in forcing fuel companies, whether in the petroleum market or propane supply business, was envisioned as a “last resort” under the legislation approved by the Progressives-led government last year.

Mr. Morgan told accounts committee members that he believed Cayman could achieve what it wants in “assuring that fuel prices are as low as possible” with the model that is in place now.

Mr. Morgan said the first decision OfReg made in the fuel sector was to determine that the major suppliers, Sol Petroleum and Rubis in motor vehicle fuels and Home Gas in the propane market, had what is termed “significant market power” under the law.

With that determination having been made, Mr. Morgan said OfReg could now formulate a set of rules to “make sure the playing field is level.”

What the Cayman market cries out for at the moment, the OfReg chief said, was a significant third player in both the fuel and the telecommunications markets, to “keep the big players honest.”

“We need to not discourage the possibility of a new entrant coming in,” he said.

Mr. Miller pointed out that at least one smaller third player had entered the local fuel market and so far there had been no noticeable different in price.

To a certain extent, there is little Cayman can do about the prices charged to locally operating fuel distributors for bulk fuel and shipment to the islands. Those costs will be roughly the same for anyone in the market, Mr. Morgan said.

The “spread” in the local portion of the costs, from the time the fuel is stored at the Jackson Point Fuel terminal to when it is sold to the public at the petrol stations, is about $1.50, Mr. Morgan said.

“It is in that space which, no matter who the player is, that they will have room to operate,” Mr. Morgan said. “The price delivered to our ports we have very little control over. The question is what happens from the ports to the retail pump?”

OfReg is researching that area now and has received “good cooperation” from the local fuel companies, Mr. Morgan said. However, the new agency has been hampered by a lack of funding due to various budget matters that were discussed in the Public Accounts Committee Wednesday.

Mr. Morgan said he believed those matters had now been addressed by Cabinet and that the agency was ready to move forward.

What the law allows

The Progressives-led government introduced and passed the Fuel Market Regulation Law during March 2017. The law was part of the effort to combine the regulation of public sector utilities and commodities under the newly formed Utility Regulation and Competition Office, now called OfReg.

Cayman’s water, electricity, telecommunications and fuel sectors are all regulated under that office.

OfReg was given the ability to determine “significant market power” under the provisions of the law to rule upon 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.”

The government approved separate laws last year that give the new regulator power to inspect local distributors’ and retailers’ prices, but the law does not allow those to be publicly released. Rather, the information on pricing is used to inform government officials on other decisions involving the competitive environment.

1 COMMENT

  1. How does one determine “suitable competition”? Will they allow more companies to come in? Will they tell them “drop your price”? How do they enforce that? Anyone?

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