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Hong Kong economy

Decision to reject most petrol market reforms is a disappointment

If Hong Kong is to become more competitive, tough decisions must be made. But if the government’s response to the Competition Commission’s review of the petrol market is any guide, maintaining the status quo seems to be the easiest option

PUBLISHED : Sunday, 12 August, 2018, 10:14pm
UPDATED : Sunday, 12 August, 2018, 10:13pm

Hong Kong’s petrol prices are among the highest in the world. Few were surprised, therefore, when the city’s Competition Commission discovered “highly unusual” practices in the petrol market and put forward recommendations for change. Last month, the government rejected most of the proposals in the commission’s 2017 report. The decision is disappointing, dashing hopes of reform.

The commission had called for steps to be taken to ensure more players in the market, more service stations, and more choice for the consumer. The government adopted minor proposals, notably a call for prices to be displayed more prominently at service stations. It promised to continue reviewing tendering arrangements. But officials dismissed the more ambitious recommendations, citing various reasons such as a desire not to interfere with the industry and concerns that the costs of change might outweigh the benefits. Maintaining the status quo was clearly seen as the easiest option.

‘Political will’ needed in Hong Kong government to reform motor fuel market, Competition Commission says

One of the most eye-catching proposals by the commission was a call for oil companies to reintroduce the sale of a cheaper type of petrol, 95 RON. Only 98 RON, among the most expensive grades, is currently sold in Hong Kong even though most vehicles could use the cheaper one. The government said such a move would not make much difference to the price of petrol and could involve significant operational costs for the oil companies. Officials should heed the call of commission chairwoman Anna Wu Hung-yuk to back up these arguments with detailed figures. Introducing the cheaper form of petrol would provide more choice and make a statement about the government’s intentions to make the market more competitive.

The most important proposals in the commission’s report concerned structural change. If competition is to be increased, steps must be taken to enable new players to enter the market. The commission, for example, argued that existing market operators should grant third parties access to their terminal facilities. This was rejected by the government because it raises “complex questions” and “may also give rise to substantial legal implications”. The same could be said of structural reform in any industry. Long-term policies are needed to make a more competitive environment in the city possible. The commission has, for example, highlighted plans by the city’s two power companies to expand their critical infrastructure as a move which will make future liberalisation of that industry more difficult. If the government is to honour its commitment to make Hong Kong more competitive, it must start planning for the future and take the tough decisions which will make this possible. It took years to establish a Competition Commission. Having taken that step, the government should be more willing to follow its advice.