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LCQ1: Competition Commission's report on Hong Kong's auto-fuel market
     Following is a question by the Hon Starry Lee and a reply by the Secretary for the Environment, Mr Wong Kam-sing, in the Legislative Council today (May 24):


     The Competition Commission (the Commission) has earlier on released a Report on Study into Hong Kong's Auto-fuel Market (the Report), which points out that while there is no hard evidence of oil companies engaging in the anti-competitive conduct of collusive price-fixing, the auto-fuel market in Hong Kong has a number of highly unusual features that have undermined the effectiveness of competition in the market. Those features include: the sale of petrol of only one single octane number which are more expensive, the offer of discounts in a complex and opaque manner, and the high barriers to market entry and expansion. In this connection, will the Government inform this Council:

(1) given that the Commission has, in the light of the aforesaid market features, made a number of recommendations in the Report (including an increase of petrol filling station (PFS) sites and a review of the tendering system concerned, clear display of pump prices and walk-in discounts at prominent locations of PFS, reduction of entry and expansion barriers), whether the authorities have plans to implement such recommendations; if so, of the details and timetable; if not, the reasons for that; whether the Government will conduct a study on setting the sale of petrol of 95 research octane number as one of the lease conditions when PFS sites are re-tendered for leasing, so as to promote the re-introduction of this kind of cheaper petrol; if so, of the details; if not, the reasons for that;

(2) whether it will examine amending the Competition Ordinance to empower the Commission to obtain more information, including certain commercially sensitive information (e.g. data on the discounts offered to different customers) when conducting market studies; if so, of the details; if not, the reasons for that; and

(3) whether, in the long run, the Government will study the introduction of a mechanism under which new entrants to the auto-fuel market are allowed, subject to certain conditions, to use the existing terminal storage facilities, as well as the import of fuels by constructing a pipeline connecting to the Mainland with a bonded warehouse situated at the boundary, so as to reduce the structural barriers to market entry?


     President, the consolidated replies of the Environment Bureau (ENB) and Commerce and Economic Development Bureau to the above three questions are as follows:

(1) and (3) The Competition Commission (the Commission) made four short term recommendations and one long term recommendation to further competition in the Hong Kong's auto-fuel market. The short term recommendations include the re-introduction of 95 Research Octane Number (RON) petrol, increase the number of petrol filling station (PFS) sites, review of the tendering system for PFS sites and prominent display of pump prices and walk-in discounts at PFS. In the long term, the Commission recommends exploration of potential 'structural' reform options.

(i) The re-introduction of 95 RON petrol

     The existing legal requirements as well as the lease conditions of the PFS sites do not prohibit the supply of 95 RON petrol. To avoid engine knocking and the resulting excessive emissions, the Air Pollution Control (Motor Vehicle Fuel) Regulation (Cap. 311L) requires petrol to have a minimum of 95 RON. For petrol engines that are designed to run on 95 RON petrol, using petrol of a higher RON will not bring forth additional emission merits.

     The ENB will seriously consider the Commission's recommendation that 95 RON petrol should be re-introduced into the market to provide more choices to consumers. We will discuss with the relevant Government departments and the oil companies whether and how we may specify in the lease conditions the requirement to supply 95 RON petrol in the 28 PFS due to be re-tendered starting by batches from July 2018 having regard to the site constraints at individual PFSs and other factors.

(ii) Increasing the number of PFS sites

     The Commission's recommendation for providing more PFS involves planning and land matters. ENB notes that the existing PFS sites can meet the market demand for auto-fuel. Given the scarcity of land in Hong Kong, we need to consider the different needs of the community in deciding whether more land should be allocated to PFS use. Site reservation for new PFS would have to be justified by the anticipated growth of an area (such as a new development area) and all relevant factors including land use compatibility, traffic, environmental and fire safety. ENB will work with the relevant Government departments to monitor the possible need for more PFS sites.

(iii) Review of tendering system for PFS sites

     The existing "super bid" tendering arrangement (i.e. sites are tendered in batches, consisting of about two to five sites per batch, such that tenderers can submit a "super bid" for all the sites in the batch or submit individual bids for each of PFS sites in the batch) has already facilitated new entrants in acquiring a critical mass of PFS sites to achieve economy of scale for an effective competition in the auto-fuel retail market. Since the introduction of the "super bid" tendering arrangement, two new operators have obtained 35 out of the 61 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 90 per cent to about 70 per cent.  These figures demonstrate that the above tendering arrangement has effectively enhanced competition in the auto-fuel retail market. ENB is prepared to consider suggestions to improve the tendering system

(iv) Prominent display of pump prices and walk-in discounts

     The ENB has already commissioned the Consumer Council to develop the "Auto-fuel Price Calculator" and its respective smartphone applications to facilitate consumers to obtain the pump prices and discounts information offered by different oil companies or PFS for making wise choices. We agree to the Commission's recommendation to further increase the transparency of fuel price information to consumers. We will discuss with the relevant Government departments and the oil companies whether and how we may specify in the lease conditions the requirement to display pump prices and discounts prominently at the PFS due to be re-tendered.

(v) Exploration of potential 'structural' reform options

     On the long term recommendation regarding potential 'structural' reform options, as pointed out by the Commission in its report, many of the measures to facilitate new entrants would incur substantial costs. For example, the proposal of introducing a new open access terminal storage facility will require the provision of new land, while the suggestion of constructing a pipeline to import fuel from the Mainland will also have substantial implications on land use, environment and safety.  We will need to carefully consider the pros and cons as well as the tenability of the suggestions before determining whether we will undertake any detailed study.

(2) There had been extensive public consultation and thorough discussions at the Legislative Council (LegCo) before the enactment of the Competition Ordinance (Cap. 619) (the Ordinance). The existing provisions of the Ordinance were drawn up by the Government having balanced different considerations and were passed by the LegCo.  The Ordinance clearly sets out the powers and functions of the Commission.

     Under the Ordinance, although the Commission has no power to obtain specified information or documents for conducting market studies, it may conduct an investigation if it has reasonable cause to suspect that a contravention of a competition rule has taken place, and require any person to produce specified information or documents, or to attend before the Commission, etc., in accordance with the Ordinance.

     The Ordinance has been in full operation for a year or so, and the auto-fuel market study is the second study completed by the Commission so far. We will continue our liaison with the Commission and will review the Ordinance after it has been in operation for a number of years, taking into account the experience gained.

     Thank you President.
Ends/Wednesday, May 24, 2017
Issued at HKT 13:00
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