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Fuel prices, labelling under scrutiny

Monday 18 January 2016 | Published in Letters to the Editor

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Dear Editor, I refer to a letter to your column on prices in the Cook Islands and welcome the opportunity to discuss the two issues raised - the impact of global fuel prices on local prices and price labelling obligations by stores. Both points are valid and I accept accountability to respond to as Secretary of the Ministry of Internal Affairs. I am happy to say that much effort has been placed in both areas. Since 2010, fuel prices in the Cook Islands have been significantly distorted arising from a substantial profit guarantee to one of the companies supplying fuel. In that time, we have seen this negatively impacting local prices of both petrol and diesel, resulting in companies moving away from bulk supply arrangements, the most efficient supply of fuel to Rarotonga, to inefficient ISO tanktainer supply, raising the cost per litre of fuel. After a review begun in early 2015, the Price Tribunal has put in place new pricing arrangements in July 2015 to ensure that our price setting arrangements forces those companies to look for competitive prices to the consumer, which is more likely to be achieved by adopting bulk supply arrangements over ISO tanktainer supply. Both of the two major fuel importers have undertaken efforts in 2015 to ensure they are now importing in bulk supply. Since the introduction of the new arrangements, prices for fuel and diesel have fallen by up to 20 per cent for petrol and 27 per cent for diesel compared with prices a year ago (when based on the highest maximum retail prices available at the time), and even further by 27 per cent for petrol and 34 per cent for diesel compared with two years ago. The new pricing arrangements also now benchmark local price movements against global price movements. Global price movements assists us in ensuring that there is an independent check to verify the reasonability of changes in the landed cost of petrol and diesel to the Cook Islands. The landed cost, however, represents only 40 per cent of the total price that is charged at the pump. The other costs allowed in that price are levies payable on fuel, an operating allowance and margin for importers as well as a margin for retailers. So changes in global prices affecting landed costs will not be directly passed on to consumers. The Price Tribunal also looks closely at the onshore costs by requiring all fuel importers to supply their audited annual accounts and these are closely scrutinised and questioned if there is anything unusual. The Price Tribunal will be undertaking a further review of the current arrangements in February and will be speaking with fuel importers, retailers and other stakeholders for the primary purpose of ensuring that the best possible price is passed on to consumers. On the second issue regarding price labelling, I can confirm that we have one officer (in a division of two staff) who carries out spot checks each week on Rarotonga when fuel prices are monitored which basically means most shops are covered. Most of those store owners do a reasonable job, however, coverage by one officer means that 100 per cent price inspections at all times are feasibly impossible. We are very appreciative of members of the public reporting such instances to us directly as this enables us to directly target those store non-compliant store owners. Bredina Drollet Secretary, Ministry of Internal Affairs

Dear Editor, I refer to a letter to your column on prices in the Cook Islands and welcome the opportunity to discuss the two issues raised - the impact of global fuel prices on local prices and price labelling obligations by stores. Both points are valid and I accept accountability to respond to as Secretary of the Ministry of Internal Affairs. I am happy to say that much effort has been placed in both areas. Since 2010, fuel prices in the Cook Islands have been significantly distorted arising from a substantial profit guarantee to one of the companies supplying fuel. In that time, we have seen this negatively impacting local prices of both petrol and diesel, resulting in companies moving away from bulk supply arrangements, the most efficient supply of fuel to Rarotonga, to inefficient ISO tanktainer supply, raising the cost per litre of fuel. After a review begun in early 2015, the Price Tribunal has put in place new pricing arrangements in July 2015 to ensure that our price setting arrangements forces those companies to look for competitive prices to the consumer, which is more likely to be achieved by adopting bulk supply arrangements over ISO tanktainer supply. Both of the two major fuel importers have undertaken efforts in 2015 to ensure they are now importing in bulk supply. Since the introduction of the new arrangements, prices for fuel and diesel have fallen by up to 20 per cent for petrol and 27 per cent for diesel compared with prices a year ago (when based on the highest maximum retail prices available at the time), and even further by 27 per cent for petrol and 34 per cent for diesel compared with two years ago. The new pricing arrangements also now benchmark local price movements against global price movements. Global price movements assists us in ensuring that there is an independent check to verify the reasonability of changes in the landed cost of petrol and diesel to the Cook Islands. The landed cost, however, represents only 40 per cent of the total price that is charged at the pump. The other costs allowed in that price are levies payable on fuel, an operating allowance and margin for importers as well as a margin for retailers. So changes in global prices affecting landed costs will not be directly passed on to consumers. The Price Tribunal also looks closely at the onshore costs by requiring all fuel importers to supply their audited annual accounts and these are closely scrutinised and questioned if there is anything unusual. The Price Tribunal will be undertaking a further review of the current arrangements in February and will be speaking with fuel importers, retailers and other stakeholders for the primary purpose of ensuring that the best possible price is passed on to consumers. On the second issue regarding price labelling, I can confirm that we have one officer (in a division of two staff) who carries out spot checks each week on Rarotonga when fuel prices are monitored which basically means most shops are covered. Most of those store owners do a reasonable job, however, coverage by one officer means that 100 per cent price inspections at all times are feasibly impossible. We are very appreciative of members of the public reporting such instances to us directly as this enables us to directly target those store non-compliant store owners. Bredina Drollet Secretary, Ministry of Internal Affairs


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