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Hong Kong economy

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

Chairwoman of antitrust body believes infrastructure constraints creating ‘very nasty problems’ for buyers

PUBLISHED : Saturday, 28 July, 2018, 9:59pm
UPDATED : Saturday, 28 July, 2018, 11:19pm

The Hong Kong government needs “political will” to drive change and foster competition, the chiefs of the city’s antitrust watchdog have said, a week after officials dismissed the outfit’s advice on liberalising the motor fuel market.

“[The] competitive market is not just the private sector. It has got to be backed up and supported by government policies, and they’ve got to look at these areas to see how far they are willing to go for a change,” Competition Commission chairwoman Anna Wu Hung-yuk told the Post.

The government on July 17 rejected a commission suggestion that longer-term structural reform of the petrol market be launched, saying “the costs could outweigh the benefits”.

But Wu countered: “Infrastructure constraints are creating very nasty problems for consumers.”

Officials also declined to reintroduce a petrol product formerly offered in the city, claiming the extra operating and capital expenses incurred might not yield cheaper choices.

The commission’s CEO, Brent Snyder, expressed disappointment with the government’s decisions.

“It really goes back to the issue of political will in the sense that there can’t be any change to the status quo without addressing the long-term storage and capacity issue,” he said.

One of the watchdog’s suggestions was to require oil companies share their existing terminal facilities with third parties. But Environment Bureau officials said such a mechanism would raise complex questions about quality and liability.

Fuel prices have been notoriously high in Hong Kong, where there are 180 filling stations operated by six petrol companies: ExxonMobil, Shell, Caltex, Sinopec, PetroChina and Feoso. Recent data compiled by GlobalPetrolPrices.com suggested the city ranked second most expensive in the world for gasoline, charging US$2.10, or HK$16.48, per litre.

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Wu criticised the government for rejecting a reintroduction of 95 RON petrol, which was briefly supplied in the city from October 1991 to March 1992. The withdrawal stemmed from consumers’ preference for 98 RON petrol, according to a Legislative Council document the oil companies quoted.

RON is an octane rating number, measuring how easily the fuel will ignite inside an engine.

“We cannot change the law quickly,” Wu said. “We cannot change land supply quickly. But if you were to spell out in a petrol filling station tender document a requirement that you need to sell 95 [RON petrol] and diversify your products, technically it’s possible.”

In the document issued earlier this month, bureau officials argued 95 RON petrol could only be about 10 cents cheaper than 98 RON petrol per litre, which might easily be offset or even outweighed by additional capital and operating costs. They claimed oil suppliers might need to install extra underground storage tanks and modify other facilities such as dispensers and pipelines for the proposed reintroduction.

Hitting back, Wu urged officials to show the figures justifying their decisions.

“The government said it had looked at it,” she said of the reintroduction proposal. “They have come to this conclusion, but they are not sharing that information with either us, legislators or the public.”

Wu said the land leases for about 30 filling stations, or one-sixth of the total number in Hong Kong, expired this year. She added that about 99 per cent of vehicles in the city could use 95 RON petrol, and that 98 RON petrol, of a higher calibre, was meant for racing cars.

The government ... is not sharing the information with either us, lawmakers or the public
Anna Wu Hung-yuk, Competition Commission

“That is a single opportunity where the government could add into the tender terms a requirement for product supply diversification,” she said.

In a written reply to the Post, the bureau said it shared the commission’s vision but also considered in its decision-making other important factors such as the likely impact of the recommendations on fuel prices, the environment and traffic conditions.

Lawmakers across the political spectrum blasted the government. Michael Luk Chung-hung, of the pro-establishment Hong Kong Federation of Trade Unions, said although bringing back 95 RON petrol would only provide a slightly cheaper option, it was still worth allowing consumers to try it. He called the commission’s suggestions “feasible” and “logical”.

“The government is always like that,” Luk added. “It’s just like [the case of] Professor Nelson Chow Wing-sun. He was appointed to conduct a study on a universal pension system, but the government did not use it.”

Chow, one of the city’s most respected social policy scholars, completed a government-commissioned report in 2014 on retirement protection. However, his recommendation that a universal scheme be implemented was shunted aside.

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Democratic Party chairman Wu Chi-wai said the government’s responses amounted to an endorsement of what he described as a motor fuel market oligopoly. He believed the watchdog had not been conferred adequate power to tackle anti-competitive behaviour.

“There is always a saying that the Competition Commission can fight tigers, but there are a lot of problems in the market and the commission cannot deal with them,” he said.

In its report issued last year, the watchdog said it had discovered “highly unusual” practices hindering market competition. But the study ruled out any collusion, saying there was insufficient evidence that oil companies in the city had acted as a cartel.

Wu said officials should allow the commission to look into the operating costs of each fuel company so that they could determine whether the firms’ market conduct was harming the public interest.