Fuel fears: Soaring petrol prices raise Jamaica's concerns

Brian Bonitto, Special Assignment Editor

In life, two things are certain - taxes and death. However, nowadays, we could add rising fuel prices to the mix to make it three. Last week, the highly combustible oil price shot past the US$100 mark to reach US$104.64 per barrel - a first in two-and-a-half years - sending shock waves throughout the global economy.

At home, Jamaican consumers had to pay an additional $2.50 per litre at the pump, with predictions from the industry that this could increase further.

"Since the beginning of the year, fuel prices have been trending upwards," said Trevor Heaven, president of the Jamaica Gasolene Retailers Association (JGRA). "And, when you look at what is happening in the Middle East and in Northern Africa, you will see that the fallout in fuel supplies will certainly put a burden on local inventories and will translate to increased prices."

The JGRA president said petrol prices could soar to a high of J$120 per litre next week, if current trends continue.

The Mandeville-based businessman said with rising fuel costs, operators of petrol stations were finding operations of their businesses very challenging.

"Our biggest problem is finding the necessary capital to fund the purchase of fuel," he said. "We buy fuel cash, in advance. Most of our dealers then have to go to the banks to seek additional overdraft facilities to be able to pay for fuel at this time. And, with reducing margins and volumes, together with increasing costs, we are very challenged."

Heaven said he was, however, in the process of drafting a proposal which could see a reduction in prices to the end-user. The proposal, according to Heaven, should include a request of marketing companies to pass on the rebate they receive from Jamaica's local refinery, Petrojam; a call for a suspension in increases in rental and royalties; and, for them [ the marketing companies] to look at a reduction in margins which could be passed on to the market.

"Collectively, with these three items, you should see a significant reduction in prices to the end users," Heaven added.

In the meantime, St James Taxi Association president, Dion Chance, told Automotives that he has been closely monitoring the rising fuel prices and would be forced to make a decision if current trends continued.

"If the prices keep spiralling out of control, we will have no alternative but to seek an increase in fares sometime in the future," he said.

Passenger decline

Chance - who is also president for the 27-member taxi umbrella group, National Council of Taxi Association - said in addition to rising fuel costs, passenger loads have been declining.

"One of the things we are looking at - as a national body - is how to educate our members to shop around for petrol at a reasonable price. So, if I find a station which sells fuel less than another, I would pass that information onto my fellow members," he said.

Chance said a serious overhaul was needed of the current fuel-pricing mechanism employed by Jamaica's local refinery, PetroJam.

"We not purchasing fuel from the US market. Therefore, this US Gulf reference pricing is not the pricing mechanism that should be used locally. We get our fuel from Venezuela, under the Petro Caribe agreement and it is coming in at a far less price than we would have got it from the US," he said.

"Fuel prices are eating into our profits," he added.

Reginald Allen, corporate communications manager of the state-run bus entity, Jamaica Urban Transit Company (JUTC), said despite the rising fuel costs, he does not see an increase in bus fares in the near future.

"If the global situation persists, the JUTC may petition Government for a greater subvention to cover the low-cost concessionary group - those who pay a J$20 fare - which has been declining over time," he said. "But, no fare increases for now, from where I sit."

Vitus Evans, president of Jamaica Exporters Association (JEA), said soaring fuel prices would have a devastating impact on exporters' bottom line.

"Mounting fuel costs would affect the transportation of goods," he said. "Most of the exports are coming from rural parts to get to the wharves or the airport. It will impact transportation either by ship or air."

"Fuel price also drives the price of electricity, especially in the area of manufacturing," Evans said. "And, increased fuel costs could reduce our level of competitiveness."

The head of JEA said despite the price of fuel in Jamaica, which is comparatively more than our Caribbean counterparts, there was light at the end of the tunnel.

"We have to move away from fossil fuel and look at alternative sources of energy - hydro-electricity, wind-generated electricity and natural gas," Evans added.