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LCQ3: Retail prices of auto-fuels

     Following is a question by the Hon Wong Ting-kwong and a reply by the Secretary for the Environment, Mr Wong Kam-sing, in the Legislative Council today (November 20):


     It has been reported that international crude oil prices have been falling continuously in recent months with a cumulative drop by over 20% from the peak of this year, but the local retail prices of oil products have not been adjusted downwards accordingly, thus giving rise to a situation where the relevant prices are "quick to rise and slow to drop". In response, a spokesman of an oil company explained that the local retail prices of oil products were subject to a number of factors, including import prices, duties, operating costs and so on. In this connection, will the Government inform this Council:

(1) whether it has studied if the import prices of oil products have been broadly in line with international crude oil prices in terms of trend movements and adjustment magnitude since July this year; if the study outcome is in the negative, of the reasons for that;

(2) whether it has studied if the local retail prices of unleaded petrol and ultra low sulphur diesel have been broadly in line with the monthly average Singapore free-on-board prices in terms of trend movements and adjustment magnitude since July this year; if the study outcome is in the negative, of the reasons for that; and

(3) whether it will request oil companies to enhance their transparency in pricing of oil products; whether it has plans to lower the operating costs of oil companies by such means as reducing fuel duties and land premiums for petrol filling stations, so as to reduce the prices of oil products to benefit users or related industries?



     My replies to Questions 1 and 2 are as follows:

     Retail prices of auto-fuels in Hong Kong are determined by oil companies having regard to commercial practices and their operating costs. 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 for unleaded petrol and motor vehicle diesel). We have been in close contact with oil companies and in time of international oil price reduction, urge them to adjust prices promptly to lessen the burden on the public.

     Hong Kong has no oil refinery. All auto-fuels sold locally are imported refined oil products instead of crude oil. Crude oil and refined oil products (such as unleaded petrol and motor vehicle diesel) are different products. Therefore, changes in international crude oil price and changes in prices of unleaded petrol and motor vehicle diesel are not necessarily the same. When making reference to international oil price, it is more appropriate to compare against Singapore FOB prices (i.e. Means of Platts Singapore (MOPS)) and the prices of importing oil products by oil companies.

     According to our observation, the trend movements of Hong Kong oil products import prices and international crude oil prices are generally in line in the long term, although changes in prices are not exactly the same in terms of timing and magnitude. Also, the trend movements of local auto-fuels retail prices and those of MOPS are generally in line. However, the magnitude of changes may differ due to the following factors:

(a) MOPS prices fluctuate day to day, but oil companies do not adjust their auto-fuels price daily;

(b) Local unleaded petrol prices include duty.  In addition, when oil companies adjust their prices, apart from the import prices of oil products, they also take into account changes in other operating costs such as land costs, government rent, staff cost, transportation, promotion, operation of oil terminal, etc.; and

(c) Oil companies generally provide various kinds of discounts and promotions to customers and drivers. Therefore, the selling prices of auto-fuels are effectively lower than the retail prices.

     Oil companies have reduced the prices of their oil products in response to falling import prices since July 2014. Majority of the companies have reduced their retail prices for as many as ten times, with maximum accumulated reduction of around $1.4/litre. Oil companies explain that these price adjustments not only reflect the trend movements of Singapore FOB prices for unleaded petrol and motor vehicle diesel, but also take into account factors such as operating costs and discounts as mentioned above.

     The reply to Question 3 is as follows:

     In a free market economy, similar to the prices of other consumer products, the retail prices of auto-fuels in Hong Kong are determined by the market. The policy of the Government is to make its best effort to ensure a stable fuel supply, maintain market openness and remove barriers to entry into the market to enhance competition. We also endeavour to improve transparency of auto-fuels products prices to facilitate consumers to obtain sufficient information for making suitable choices.

     On improving transparency, we post onto our website, on a weekly basis, the movements in local import prices and retail prices of auto-fuels in comparison with movements in FOB prices of Singapore unleaded petrol and motor vehicle diesel.

     In addition, we have commissioned the Consumer Council to post onto its website on a weekly basis, the local auto-fuels retail prices and information on various types of cash and non-cash discounts offered by oil companies, and to launch the "Auto-fuel Price Calculator" to promote price competition among oil companies and to facilitate consumers to make choices among the various discounts and benefits offered by oil companies.

     As smartphones become popular, we have commissioned the Consumer Council to develop smartphone applications for the "Auto-fuel Price Calculator" to allow consumers, through their smartphone, to access to petrol filling station (PFS) information (e.g. address, telephone number, auto-fuels prices, etc. of PFS), track their current location for finding the route to a particular PFS, calculate auto-fuels prices, instant discount, special discount of different PFS, create personal account for keeping track of payment records and bonus points etc. Smartphone application for unleaded petrol was launched in the second half of 2012 while that for diesel is expected to be launched before the end of this year.

     Regarding the suggestion on reducing fuel duty, I would like to point out that the Government currently levies a duty of $6.06/litre on unleaded petrol, which has not been adjusted since 1998 while that for Euro V diesel is zero at the moment. Unleaded petrol is the fuel for private motor vehicles. We also have excellent mass transport network to meet most of the public needs. Hong Kong is a small place with limited road space. Fuel duty not only provides revenues to the Government, but also helps achieve the policy objectives to alleviate traffic congestions and air quality and pollution caused by motor vehicles. The Government would therefore strike a balance among various factors such as tax revenue, environmental protection, transportation and the level of social acceptance when setting the rate of fuel duty.

     Finally, Hon Wong mentioned about the policy on land premium of PFS. Same as other land sales arrangements, the granting of Government land for use by PFS is to offer the sites to the highest bidder by public tender according to free market mechanism. Under the free market economy, the Government generally would not subsidise the commercial operation of individual trade through waiving land premium or concessionary land premium.

     Thank you.

Ends/Thursday, November 20, 2014
Issued at HKT 14:33


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