Expensive Fuel

The discrepancy between local oil prices and the collapse on the international stage shows once again that the sector requires reform.

The latest statement from the government on urging fuel suppliers to adjust their prices in light of the slumping international oil prices once again illustrates the limited tools the administration has at the moment to govern the sector. With some calling the oil price level here one of the most expensive in the world, pundits believe an overhaul is needed to introduce more competition and to safeguard the rights of consumers.

The international oil price has undergone a free-fall since early this year due to the global pandemic of the novel coronavirus (COVID-19) and the fallout between the Organization of the Petroleum Exporting Countries (OPEC) and Russia, two of the major oil sources in the world. The price of West Texas Intermediate (WTI) crude, one of the main three benchmarks in oil pricing, plunged 64.8 percent, from over US$61 in the beginning of 2020 to merely about US$21.5 in late March, the lowest level since 1999. Another major benchmark — Brent Crude — also collapsed by about 60 percent, from US$66 to around US$26.6 over the same time period.

In the face of the downward pressure, the four major fuel suppliers here — the oil arm of state-owned Nam Kwong, ExxonMobil Macau, Caltex Macau, and Shell Macau — have lowered their prices but to a much smaller extent. Before 21 March, the suppliers had cut the prices of both unleaded petrol and low-sulphur diesel six times respectively since the onset of 2020, bringing the prices down between 6.33 percent and 7.53 percent.

In a rare move — after being confronted by Macau News Agency (MNA) — the Macau Economic Bureau (DSE) and the Consumer Council co-released a statement on 21 March, noting they have paid close attention to the changes in oil prices in Macau. “Given the latest moves in the international oil prices, [the fuel suppliers] must make prompt adjustment,” the two public bodies remarked, noting the fuel prices should be raised and slashed swiftly.

“The SAR Government will continue its regular and irregular exchanges with the industry through its cross-departmental fuel monitoring taskforce,” the statement read. “Besides publishing the oil price information on a regular basis to enhance the transparency of the oil price mechanism, the Macau Economic Bureau and the Consumer Council also urge the industry to keep the changes of their fuel prices in line with the changes in the international stage, thus meeting the needs of the community as a whole.”

Following the “urging” from the authorities, the four suppliers have since cut down the prices of unleaded petrol and low-sulphur diesel further by between 4.84 percent and 6.5 percent and between 2.9 percent and 4.4 percent, respectively.

“But [we are] used to the fact that the oil prices in Macau have been ‘quick going up, slow coming down’ for years” – Victor Lei Kuok Fai, president of the Macau International Logistics and Forwarding Association

Legal Tools

The think-tank of the Macau Federation of Trade Unions, Choi In Tong Sam Association, lamented that the public have complained for years that Macau oil prices do not align with international prices. “In the past, when the oil prices in Mainland China and other countries and regions were suffering a steep decline, the Macau prices only slightly went down or even surged, compromising the rights of local consumers,” remarked Kou Ngon Fong, convenor of the youth affairs group of the think tank.

“The government definitely has not done its job well in overseeing the oil prices,” he said. Acknowledging that the authorities might not have enough legal tools to oversee the petrol and natural gas sector, he suggested it might ponder having the fuel suppliers running as concessionaires like other public utility operators — namely, electricity, water, and telecommunications operators — for better supervision.

The soaring oil price is particularly detrimental to the operation of the logistics industry. “A decline in oil price is surely a good thing for us given the lower operating cost,” said Victor Lei Kuok Fai, president of the Macau International Logistics and Forwarding Association. “But [we are] used to the fact that the oil prices in Macau have been ‘quick going up, slow coming down’ for years.”

The government should have a clear grasp of the situation “but it seems it doesn’t have any action plan,” he said, adding the authorities must strengthen supervision over the matter.

For instance, the past track record, a legal letter, has proved the officials’ hands are indeed tied. The administration revealed three years ago that it had requested more information from the natural gas suppliers here about their pricing amid mounting pressure from the public that lambasted the soaring gas price. But the attempt was in vain, and the administration even received a legal letter from the suppliers questioning whether it  had any legal basis to make such a request.

“The government should also carry out studies and formulate legislations in regards of fair competition and anti-monopoly as soon as possible so that the rights of consumers could be better safeguarded” – legislator Ho Ion Sang

Price Gap

Legislator Ho Ion Sang also pointed out, “As the [oil and gas] suppliers here are not run as concessionaires [but normal private companies]… the government is in a rather passive stance and could only make a public statement to urge the suppliers to make any adjustments.”

“The pricing mechanism of oil [and gas] products in Macau are not very transparent with limited market information, while there has also been a huge gap between the import and retail prices,” he added. According to the information from DSE, the average import price of unleaded petrol was about MOP6.38 a litre in February, but the retail prices in the same month almost doubled, between MOP12.5 and MOP13.06. The same scenario also applied to low-sulphur diesel: the average import price in February was MOP5.31 a litre, but the retail prices ranged between MOP13.75 and MOP14.35.

Mr. Ho added that the legislative work of the Consumer Protection Law should be accelerated, providing legal grounds for the government to access the pricing information of any goods. “The government can then investigate whether there are any irregularities,” the lawmaker noted. “The government should also carry out studies and formulate legislations in regards of fair competition and anti-monopoly as soon as possible so that the rights of consumers could be better safeguarded.”

After years of delay, the authorities finally proposed the new Consumer Protection Law last year, which gives power to the Consumer Council to access the information it needs to carry out investigations over the “unreasonable soaring” prices of any products and services. The draft bill was approved at the first reading at the Legislative Assembly, and it is now undergoing the deliberations of a subcommittee of the legislature before a final reading. Clauses of ensuring fair competition and anti-monopoly were originally supposed to be included in the new Consumer Protection Law, but the government has decided that the matters would be governed in separate legislations.

Industry Chains

Political commentator Ron Lam U Tou remarked that, although the government has somehow improved the transparency of the pricing of oil and gas products over the years, the soaring price and the small price gap among suppliers have hardly been changed. For instance, the difference between the average import prices of low-sulphur fuel from various sources amounted to MOP4.07 in February, but the retail price gap among the four suppliers was only less than MOP0.5. “In the past the suppliers would announce a uniform price adjustment, a practice that has been regarded as collusive price-fixing in the West,” Mr. Lam added.

From the upstream to the downstream of the industry chains, there should be reform. Concerning the upstream — namely, the city’s sole public oil depot in Ka-Ho, which is run by a subsidiary of Nam Kwong — the government should regard the operation of the depot as a type of public utilities in a bid to open up the sector to introduce more competition, he suggested.

Given a number of public bodies overseeing different areas of the oil and gas sector — the general oil policy is in the charge of the Office for the Development of the Energy Sector; the land grants of oil stations and oil depots are done by the Land, Public Works and Transport Bureau; the Economic Bureau supervises the imports of oil products and day-to-day retail, while the Consumer Council also pays attention to the oil pricing — he proposed one department should be in charge of leading the reform in the sector to avoid any confusion.

“Simply chanting slogans like anti-monopoly…does not solve any problems,” said Mr. Lam. “The most important thing is the government should do its job.”