Gas price discrimination

Marcella Scarlett, Business Reporter

Drivers outside of Kingston tend to pay a lot for gasolene than Kingston dwellers, and the Jamaica Gasolene Retailers Association is charging that it is not all due to transport costs but also the pricing policies that marketing companies employ.

The last gas survey done by the Consumer Affairs Commission shows as much as a $22 gap in prices paid by rural folk for regular gas, and that the most expensive gas is sold in parishes such as Portland, St Ann and St Mary, where the population of drivers tend to be smaller.

The Consumer Affairs Commission (CAC) says the rural gas gap has widened since earlier this year, but not by a large margin, or by no more than a dollar since the first quarter of this year.

demand and pricing

President of the JGRA, Trevor Heaven, says demand is a key input in how marketing companies price their product: low volume demand, he says, usually means higher prices. In Kingston, where demand for gasolene is heaviest across the island, pump prices are cheaper.

Heaven also insists that for the service stations owned by marketing companies - as opposed to those owned by independent dealers but sell under the brand of the big marketers - tend to offer lower prices.

"They use the price to leverage the market and thus earnings in their favour since they have the benefit of both a wholesale and retail margin," Heaven said of the strategy used by marketing companies.

"The only difference should be the transportation cost but this is not the case. Imagine Osborne Store in Clarendon is cheaper than in Kingston," he said.

Joey Issa, who as head of the PSOJ Energy Committee is the spokesman for marketing companies, did not respond to requests for comment for this story. However, two marketing company representatives dismissed Heaven's charge, saying the pricing strategy they employ is normal business practice.

Heaven's point about the I & E service station at Osborne Store is confirmed by the CAC monthly survey last done August 23-24. The consumer agency's canvass of gas stations shows that Cool Oasis at Clarendon Park, and I & E service station in Osborne Store have the cheapest regular E10 87 gasolene prices, besting even Kingston where the oil refinery is located.

Rachel Chambers of the CAC said the survey had a 66 per cent participation rate and was representative of the petrol retail industry. Chambers said all the gas stations in the major towns and cities were included in the survey.

Heaven said some of the price-competitive gas stations share ownership with the marketing companies and therefore are in a position to benefit from lower prices, by taking a smaller margin and offsetting it by selling to stations they do not own at higher prices.

the Cross Roads effect

For example, he told Sunday Business, some of the gas stations in the Heroes Circle and Cross Roads areas of Kingston, as well as Clarendon Park, are owned by marketing companies.

The results in the survey showed that the referenced gas stations in Kingston have the lowest prices in the capital.

Indeed, the Cross Roads effect on gas pricing was first linked to Total Jamaica, whose Heroes Circle station immediately became a low price leader after the French company bought out and rebranded the domestic Esso operations.

Soon others followed.

Petrojam is the chief supplier of gasolene, but marketing companies also import premium gas for distribution to their dealer networks.

Last year, 4.07 million barrels of gasolene were consumed in Jamaica. Marketing companies ChevronTexaco, Total Jamaica and Cool Petroleum imported 1.927 million barrels equivalent of refined products.

The Petrojam refinery also supplies retail gas stations through its marketing arm, Petcom.

"The marketing companies themselves, now having the benefit of direct import, do enjoy significant margins. Because when the gas lands, the price of their product is actually less than what Petrojam is going at, so they have a slight benefit," Heaven said.

"In some of the marketing companies, in areas which are not as competitive as others, they increase the price to subsidise the lower profits they make in the more competitive areas," he said. "These marketing companies are earning by virtue of where their retail business is located."

The CAC survey shows that motorists in St Ann are paying more than $20 per litre higher for petrol at the service pumps than they would pay in Kingston.

Nationally, pump prices for regular gas, E10 87, ranged from $102.40 to $124.20, a difference of $21.80.

St Ann had six of the top 10 highest price listings with Clarendon having the two lowest prices, followed by Kingston. The other top price gas stations are located in Portland and St Mary.

The prices for the premium octane, E10 90, ranged nationally from $105.80 to $129.20, a difference of $23.40.

Again St Ann had eight of the top 10 price listings, while Portland accounted for the other two.

The lowest prices were in Kingston and Clarendon.

St Ann also had six of the top 10 prices for auto diesel fuel. Diesel is sold nationally within a band $106.70 to $128.80, the cheapest of which were found in Kingston and Clarendon, and the highest in Portland and St Mary.

Steve Hill, a gas station operator of Petcom Morris Hill in St Ann, told Sunday Business that what explains the higher price in St Ann is the parish's location in Jamaica's central zone, which is known, he said, to have the most expensive haulage charges.

"I think it is about $1 more per litre. "There is a difference in cost, which we cannot do anything about," said Hill.

He added: "We have to take into consideration the volumes too. Kingston can do volumes. Also certain things are negotiable, and marketing companies determine their own markup."

Rodney Davis, chief executive officer of Cool Petroleum - owner of Shell and Cool Oasis - defended marketing companies; saying it is individual dealers who set their own prices and margins.

"You have a dealer network and the dealers have the discretion to set their prices, so it is not the marketing companies that set the price for the dealers. There is no special formula and it is definitely at the discretion of the individual dealers," said Davis.

"Haulage alone cannot explain the difference in prices. Prices will differ from market to market. A smaller gas station that have smaller volumes than a large one but the fixed cost is similar, they will have to make more per litre of fuel to cover their fixed cost because they have lower volumes. So a rural market versus a metropolitan market in all likelihood would have less volume to cover their fixed cost and therefore need to make more margin per litre."

no preferential margins

On Heaven's complaint of discriminatory pricing favourable to gas stations owned by marketing companies, Davis dismissed it, saying that for its brands, Cool acts as distributor and not a supplier or seller and that there is no preferential margins at play. Each station then prices the gas to cover its fixed and other costs, which are likely to vary by location, he said.

Davis also said the dynamics at play in the Clarendon Park area relates to high competition among the independent dealers who can afford to take a smaller margin, which forces their rivals around them to come down on their prices or risk losing volume sales.

Sunday Business made several attempts to clarify the weighting of the different factors that go into the pricing of gasolene at the pump, but the companies insisted it was too integral to their competitiveness to comment.

"The pricing is a sensitive thing," said Petcom Brand Manager Craig Plunkett.

"Each company has their own pricing policy; I am not going on record talking about Petcom's pricing policy," he said.

marcella.scarlett@gleanerjm.com