Utility regulator OfReg expects to complete an investigation into the reduction of gas prices in the Cayman Islands by the end of July.
The regulator was not satisfied with the reduction of prices at the pumps following the rapid decline of oil and fuel prices globally since the beginning of the COVID-19 pandemic in mid-March, Premier Alden McLaughlin said during Monday’s sitting of the Legislative Assembly.
His comments came in response to a parliamentary question by Opposition Leader Arden McLean, who asked what the regulator had done to ensure fuel prices in the islands were fair.
Retail gas prices have dropped by 58 cents per gallon on average since mid-March. One major importer has notified OfReg that a further 15 cent reduction is imminent. McLaughlin said OfReg is taking into account the relevant factors which inform local price movements.
The regulator continuously monitors local wholesale and retail fuel prices and regularly receives information on fuel imports, margins and the different costs that make up the fuel price. But the precipitous decline in global fuel prices and local lockdown measures prompted OfReg to more closely scrutinise the timing, pace and magnitude of local price changes, McLaughlin said.
“Having ascertained that the information was not satisfactory to justify the slow price reduction at the pump,” he said, the regulator required the major importers to give a detailed explanation of the prices charged by 24 June.
This is likely to include a comparison of the wholesale and retail margins before and during the COVID-19 pandemic.
Consumers often question why significant fuel price reductions reported in the US are not more quickly reflected at the local gas pumps, if they show up at all. Fuel in Cayman is not only subject to different fuel duties, it also takes longer and is more expensive to transport it on oil tankers to the islands.
The result is a four- to six-week delay before the fuel and any price reductions arrive locally. In the last three months lockdown measures also reduced the demand for fuel and extended the time it takes for the more expensive inventory to be depleted.
The issue is complicated further by crude oil being only one of many factors that make up fuel prices. In addition to the cost of oil, these include freight and insurance, trader margins, duties, wharfage and port fees, pipeline fees, wholesale margins and retail margins.
The premier said OfReg would conduct its analysis and then take appropriate action based on its findings. This could include requiring wholesalers and retailers to pass on the effect of lower global market prices.
However, OfReg does not have the power to set prices. The premier said this would be regarded as “the nuclear option” and a major policy change, because it would amount to government fixing the prices for a particular industry.
“But it may be that if we find that the market is failing to provide adequate competition, then recommendations may well be from OfReg that that nuclear option should be adopted, which would require an amendment to regulations and possibly a change to the law,” McLaughlin said.
The premier said he was going to personally “take a careful look” at the issue, which affects all residents and visitors to the islands.
“They are perennial issues that have haunted and plagued us ever since and we really have to find a way forward that makes the system fairer to the consumer,” he said.