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Following is a question by the Hon Chan Kam-lam and a reply by the Secretary for the Environment, Mr Edward Yau, at the Legislative Council meeting today (November 16):
Question:
It has been reported that the Consumer Council completed a Study on Diesel Retail Market in September this year, which revealed that the gross margin earned by oil companies for every litre of diesel sold at the retail market had soared by 46.4% within a period of five years since 2005. The study report pointed out that adjustments made to the retail price of diesel by oil companies showed the situation of "more going up, less coming down"; the study also revealed that oil companies failed to reward consumers with rebates after the Government had waived the diesel duty in phases. In this connection, will the Government inform this Council:
(a) in monitoring the auto-fuel retail market in the past five years, whether the Government had found the situation of "quick going up, slow going down", as well as "more going up, less coming down" in respect of the retail prices for gasoline and diesel;
(b) whether the Government has examined if various oil companies have rewarded consumers by reducing the retail price for diesel after the diesel duty has been waived by the Government; and
(c) apart from publishing information on fuels, such as import prices, retail prices and promotional offers, etc., whether the Government has considered setting up a new regulatory mechanism, so as to more effectively maintain true competition in the fuel retail market?
Reply:
Mr President,
(1) As in other places in the world, there are few fuel suppliers in Hong Kong, thereby limiting the development of and competition within the market. At the same time, the supply of fuel is closely related to the daily life of the public in particular the driving community. It is also an important cost component of many businesses. We have paid close attention to the market development and price movements of fuel products, and strived to work out a monitoring mechanism within market structure constraints, that best fits the local circumstances and helps protect consumers from unfair treatment. In recent years, with continuous fluctuation in international fuel prices, oil companies have been criticised for manipulating prices in the directions of "quick going up, slow coming down" or "more going up, less coming down". The Government attaches much importance to such criticism. We have been closely tracking the price movements, and enhancing monitoring on and competition in the market through various measures.
The Government's focus is on whether changes in local retail prices of auto-fuel are in line with the trend movements of international oil prices and of import prices. We have a dedicated team to monitor the market closely and in a timely manner. When there are signs of a widening gap between retail prices and international oil prices/import prices, we would urge oil companies to promptly reduce the retail prices. In the past two years (i.e. since early 2010), we have raised with oil companies our concerns over oil prices many times, including urging them to promptly reduce the retail prices. This, we believe, has made an impact in preventing oil companies from practising "quick going up, slow coming down" in price adjustments.
We note the study report of diesel prices just released by the Consumer Council has looked into this issue. Consumer Council has been our close partner in monitoring fuel prices, and we attach much importance to the findings of the study. The report pointed out that there was no evidence of "quick going up, slow coming down" on retail diesel prices, but noted the occurrence of "more going up, less coming down". Yet the report also quoted responses from oil companies that over 90% of commercial transactions had been enjoying "commercial fleet discount". The remaining 10% of transactions were eligible for various fuel discounts in the market, including walk-in discounts applicable to all customers, or retail discounts applicable to credit card holders or members of oil companies' loyalty schemes. In other words, most consumers have been paying prices lower or much lower than the retail price shown at filling stations. This observation provides a perspective for understanding more comprehensively the pricing practices in the diesel market. Regardless of the number of consumers being affected by such "quick going up, slow coming down" pricing practice, we will not take this lightly. Apart from tracking price movements, we are also implementing a number of measures to be explained in part (3) of the reply.
(2) The Government reduced the tax for diesel from $1.11/litre to $0.56/litre in December 2007, and then exempted the tax in full in July 2008. As pointed out by the Council in the study report, in these two rounds of tax cut, all oil companies had reduced the diesel prices immediately by the same amount of the tax cut.
(3) In monitoring the operation of the fuel products market, apart from price tracking as just mentioned, more fundamental measures have been introduced to remove barriers to market entry, promote competition, and enhance fuel price transparency, so as to facilitate consumers in making their own choices.
To enhance price transparency, starting from October 2008, we have been posting onto the website of Environment Bureau on a weekly basis the movements in local import prices and retail prices of auto-fuel in comparison with movements in free on board prices of Singapore unleaded petrol and motor vehicle diesel. Apart from urging oil companies to enhance price transparency, we have also commissioned the Consumer Council to post onto its website, starting from November 2008 and on a weekly basis, the local auto-fuel retail prices and information on various types of cash and non-cash discounts offered by oil companies. In addition, we launched in February 2009 the "Auto-fuel Price Calculator" to promote price competition among oil companies and to facilitate consumers in making choices among the various discounts and benefits offered by oil companies.
To preserve an open market and remove market entry barriers, we have implemented a series of measures in the past few years to facilitate new players in entering the market, as follows -
(a) removing the requirement for bidders of petrol filling station (PFS) sites to hold import licence or supply contract;
(b) re-tendering all existing PFS sites upon expiry of their leases, instead of automatically renewing such leases; and
(c) depending on the land supply situation, tendering PFS sites in batches consisting of two to five sites per batch. The new tendering arrangement facilitates the new entrants in acquiring a critical mass of PFS within a shorter time to achieve economy of scale for an effective competition in the auto-fuel market.
Since introduction of the new tendering arrangements in June 2003, two new operators have obtained 28 out of the 41 PFS sites put up for tender and successfully entered the market. The share of the three biggest operators in terms of the number of PFS has dropped from over 93% to 74%. These figures demonstrate that the new tendering arrangements have effectively enhanced competition.
The public is also concerned about whether there are cases of price-fixing by suppliers. The first conduct rule of the Competition Bill (the Bill) under scrutiny prohibits anti-competitive agreements, concerted practices and decisions including price-fixing agreements. According to the Bill, the Competition Commission (the Commission) will have powers to investigate anti-competitive behaviours which are of public concern. If substantiated, the Commission may institute legal proceedings before the Competition Tribunal, which will make adjudication and order punishment against contravening companies. We hope the Competition Bill can be implemented as soon as possible and the Administration is now working closely with the Legislative Council to strive for the enactment of the Bill in the current legislative year, with a view to combating anti-competitive activities effectively.
Ends/Wednesday, November 16, 2011
Issued at HKT 15:22
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