Hong Kong Consumer Council calls for review of city’s motor-fuel market
- Study conducted by watchdog finds gap between retail and import prices of fuel has doubled over past seven years
- Its chief executive, Gilly Wong, has urged the government to increase transparency so authorities can investigate the pricing mechanism
Hong Kong’s Consumer Council on Thursday called for a regulatory review of the city’s motor-fuel market after a study conducted by the watchdog found the gap between retail and import prices had doubled over the past seven years.
After looking at petrol price fluctuations between 2013 and the first quarter of 2020, the watchdog found that price increases were much sharper than drops, leading to a cumulative increase in prices.
It questioned why consumers were paying HK$3 (almost 39 US cents) more for every litre of motor fuel than they had been four years ago, even though existing Brent crude oil and import prices had shrunk to 2016 levels, the government’s tax on the commodity remained unchanged and there was more competition, with new service providers entering the market.
“We know the tax on oil has not been increased. So what are the reasons contributing to a widening gap? Is it about an increase in fuel cost, inflation, or land cost? Or their profits have jumped? We want to know the reason,” the council’s vice-chairman Antonio Kwong said.
He urged oil firms and the government to be more transparent in disclosing relevant data.
We would like the government to increase transparency
The study showed although the Brent crude prices and imported fuel costs had dropped between 2013 and the first quarter of 2020, the price of fuel in the retail market had increased.
It found that the differences between the average pump price and import price surged 107.9 per cent from HK$4.06 per litre in March 2013 to HK$8.44 in March 2020.
Data also showed that while prices of Brent crude and imported fuel dropped this March to levels similar to the first quarter of 2016, the average pump price before tax still rose by more than HK$3 to HK$11.15.
The report said even though imported fuel prices per litre had dropped HK$3.68 over the past seven years, pump prices had edged up 10 HK cents – and the retail price of fuel would have to go down another 68 HK cents to match it.
However, local fuel prices have tended to go up more than import prices over that period.
Consumer Council chief executive Gilly Wong Fung-han said in the absence of relevant data, it was impossible for the watchdog to find out more about the reasons behind the problem.
She said the fuel-cost component covered imported oil prices, tax, land costs, and the overheads of oil companies. “But unfortunately, we don’t have access to such data and that’s why we would like the government to increase transparency.”
Why do Hongkongers pay sky-high prices for petrol?
Wong said a government report in 2005 had analysed the cost components of the fuel market, so it was feasible to find out the relevant data to conduct a market review and formulate a long-term development plan.
“After some 10 years, [a study] is really needed,” Wong said. “Fuel is important to any market. It’s what we called a strategic resource.”
The study also found Hong Kong’s five oil companies mostly had very similar price adjustment patterns over the past seven years.
The level of conformity in pump prices among the firms rose from 66.3 per cent in 2016 to 92.3 per cent in the first quarter of this year, despite new entrants entering the market since mid-2000.
But Wong could not conclude whether it was price-fixing among oil companies, and called on officials to empower the Competition Commission with the right to order relevant parties to provide information for study.
‘Hong Kong’s motor fuel policy is unclear and the market has failed’
“This may not be good enough to confirm there is price-fixing behaviour, because it is a very consolidated market for the petrol industry. Their behaviour can move very similarly together. It can be classified as parallel pricing,” she said, adding that further investigation was necessary.
The council advised oil companies to increase their transparency by disclosing more cost and sales information.
In a reply to the watchdog, oil firm Shell said crude oil prices did not apply to the city’s auto-fuel market and that retail pump prices included costs of government duty, land, wages, marketing and overheads.
Caltex, which concurred with Shell’s comments, said higher tender prices of petrol sites in recent years had added to its operating costs.
Another oil firm, Esso, said it was unable to comment without reading the Consumer Council report.
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