*********************************
Following is a question by the Hon Emily Lau and a written reply by the Acting Secretary for the Environment, Ms Christine Loh, in the Legislative Council today (October 14):
Question:
According to the information from the Census and Statistics Department, during the two-year period from August 2013 to July 2015, the import prices of unleaded petrol, diesel and liquefied petroleum gas dropped from their peak levels by 40 per cent to 50 per cent, but their retail prices decreased by a mere 10 per cent to 20 per cent, showing inconsistent rates of decrease. In addition, there were about 30 occasions in the past two years in which three or more oil companies adjusted the retail prices of auto-fuel on the same day, thus arousing suspicion of collusive price-fixing by the companies in order to make the auto-fuel market lack competition. In this connection, will the executive authorities inform this Council:
(1) whether they have assessed if the local oil companies have justifications for not lowering the retail prices by an extent corresponding to the drop in the import prices of auto-fuel; if they have made such an assessment, of the criteria adopted; if the assessment outcome is that the oil companies do not have justifications, of the measures the authorities have in place to urge the oil companies to lower the relevant prices;
(2) whether they have studied if the adjustment of retail prices of auto-fuel on the same day by various oil companies involved anti-competitive practices; if they have conducted such a study, of the details; if not, the reasons for that;
(3) whether they will consider stepping up the monitoring of the auto-fuel retail pricing mechanism of oil companies to enhance the transparency of the relevant price adjustments; if they will, of the details; if not, the reasons for that;
(4) whether they have studied ways to improve the open tender system for petrol filling station sites to remove barriers to the auto-fuel market, so as to encourage new operators to enter the market, thereby promoting competition and enhancing economic efficiency; if they have conducted such a study, of the details; if not, the reasons for that; and
(5) whether they have studied the formulation of a new monitoring mechanism with a view to more effectively promoting competition in the auto-fuel market; if they have conducted such a study, of the details; if not, the reasons for that?
Reply:
President,
(1),(3)and(5) In assessing whether the prices of local auto-fuels are adjusted in tandem with the changes in import prices of auto-fuels, we should consider the portion of import price of auto-fuels in the pump price, and should not take into account other components (that is, tax and other operating costs) in the pump price. When the import prices drop, if tax and other operating costs are unchanged, the percentage change of pump price must be lower than that of import price. On the contrary, when the import prices rise, the percentage increase in pump price will be lower than that of import prices. Therefore, it is not appropriate to simply compare the percentage change of auto-fuels pump prices with that of import prices. Besides, as oil companies generally provide various kinds of discounts and promotions to consumers, the actual prices paid by consumers are effectively lower than the pump prices listed at petrol filling stations.
According to our analysis, the import prices of auto-fuels have dropped by around 40 per cent from their peak levels between August 2013 and July this year. During this period, oil companies, in response to falling import prices, have adjusted the pump prices of auto-fuels downwards, with accumulated reduction of around $2.5 per litre, which represents around 40 per cent of the peak level import prices of auto-fuels (the peak level import prices of unleaded petrol was $6.47 per litre in June 2014; while that of diesel was $6.31 per litre in December 2013). Therefore, the magnitude of the pump prices adjustments is generally in line with the trend movement of import prices.
In a free market economy, retail prices of auto-fuels in Hong Kong are determined by oil companies having regard to commercial practices and their operating costs. In addition, we do not consider that the Government should set an appropriate profit level for the auto-fuels industry or other consumer products industries. The role of the Government is to endeavour to ensure a stable fuel supply, maintain market openness, and remove barriers to enter into the market to enhance competition. We also endeavour to improve the transparency of the prices of auto-fuels products to facilitate consumers to make choices. We appreciate the impact of the auto-fuels prices on the public and have been monitoring the changes in local retail prices of auto-fuels and comparing them with the trend movements of international oil prices (benchmarked against the Singapore free-on-board (FOB) prices (i.e. Means of Platts Singapore) for unleaded petrol and motor vehicle diesel). We will urge the oil companies to promptly reduce their retail prices whenever there is room to do so in order to lessen the burden of the general public.
Also, the Government has endeavoured to improve the transparency of auto-fuels products prices to facilitate consumers to obtain sufficient information for making choices. In this regard, we have posted onto the Environment Bureau's website, on a regular basis, the movements in local import prices, retail prices as well as the Singapore FOB prices of unleaded petrol and motor vehicle diesel. We have also added the linkage to the statistics on import and retail prices of major oil products on the Environment Bureau's website. We have also commissioned the Consumer Council (CC) to launch the "Auto-fuel Price Calculator". The CC posts onto its website and smartphone applications daily the local auto-fuels retail prices and information on various types of cash and non-cash discounts offered by oil companies. Consumers can make better use of the relevant information to patronise a suitable petrol filling station.
(2) The Competition Ordinance (the Ordinance) enacted in June 2012 provides a legal framework to tackle anti-competitive conduct (including price fixing, abuse of market power, etc.) in various sectors, with a view to maintaining fair and sustainable competition in the market. The Competition Commission, which is established as an independent statutory body under the Ordinance, is empowered to investigate into an alleged anti-competitive conduct, either on receipt of complaints, on its own initiative, or on referral from the Government or a court, and to bring enforcement actions before the Competition Tribunal. According to our understanding, the Competition Commission will conduct study on whether the oil companies are engaged in anti-competitive behaviour in setting the prices of auto-fuels. We will collaborate with the Competition Commission to facilitate their work in this regard as appropriate.
(4) In order to enhance competition, the Government has since 2003 re-tendered all existing petrol filling station (PFS) sites upon expiry of their leases, instead of renewing the leases with the existing operators. Also, we have removed the previous requirements that bidders of PFS sites have to hold auto-fuel import licence and supply contract. Since the introduction of these tendering arrangements, two new operators have successfully entered the market. The share of the three biggest incumbent operators in terms of the number of PFS has dropped from over 90 per cent to about 70 per cent. At present, there are over 180 PFS in Hong Kong, operated by 6 companies. Given the size of the Hong Kong market, these tendering arrangements can effectively promote the competition in auto-fuels retail market and enhance economic efficiency.
Ends/Wednesday, October 14, 2015
Issued at HKT 14:03
NNNN
