OfReg consults stakeholders on its fuels market assessment

Fuel sector ‘not highly competitive’

The Utility Regulation and Competition Office (OfReg) has asked stakeholders to provide feedback on its Fuels Market Economic & Regulatory Assessment report that it released on 16 April.

In addition to an economic and regulatory assessment of the fuel sector, the report defines the existing markets and assesses the extent and effectiveness of competition within them.

The exercise is part of OfReg’s attempts to establish a regulatory regime for the fuel sector in Cayman.

The study follows a report and public consultation of fuels market definitions last year with a competition assessment of the relevant markets and an evaluation of the potential options for regulatory reforms of those markets.

“The outcome of this exercise is significant to shape the next level of intervention and regulation of the fuel sector,” said Chief Fuels Inspector, Duke Munroe.

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“Implementing the recommendations from this exercise will further enhance our work in the sector. We look forward to the input and feedback from all stakeholders, to conclude and implement the necessary regulatory measures”.

Findings

The study aims to reflect the types and grades of fuels currently available in the country and other potential fuels which may become available in the medium to long-term in the Cayman Islands.

It found that the fuel sector is “generally highly concentrated” and “not highly competitive”, although the number of viable competitors is limited by economies of scale and the small market size.

“[I]n this context competition is at least partly ‘workable’ and can potentially work to a satisfactory degree. Nevertheless, competition in the fuel sector is only partly effective and can be improved further by targeted policy interventions,” the study concluded.

These policy interventions include adopting guidelines and procedures for anticompetitive conduct, including mergers control and abuse of dominance.

OfReg suggests retaining the current guidelines on market definition and significant market power in their entirety and to add an amendment defining a market share of 40% or higher as significant market power.

The office proposes enhanced price monitoring activities and will consider an open access regime for certain critical, “bottleneck” infrastructure, particularly infrastructure required to import bulk fuels.

Ofreg said it wants to further examine available policy options that can make competition work effectively, “before resorting to the introduction of direct price controls”.

In addition, the regulator will consider means of reducing barriers to entry, improving stakeholder cooperation and information gathering.

Malike Cummings, CEO of OfReg said the regulator’s mandate is to ensure sustainable, reliable and consistently high-quality fuel options at fair prices to consumers.

“Despite the delays and challenges encountered during this important piece of work, the team sought to ensure the process was not compromised, recognising the critical nature of this assessment to inform recommendations for the regulation of the fuels sector,” he said.

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