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Retailers divided over fuel pricing

A motorcycle is filled with fuel in Phnom Penh yesterday. The government is negotiating with petroleum companies to implement a proposed pricing mechanism.
A motorcycle is filled with fuel in Phnom Penh yesterday. The government is negotiating with petroleum companies to implement a proposed pricing mechanism. Pha Lina

Retailers divided over fuel pricing

Petroleum retailers operating in Cambodia are divided over the government’s proposed fuel-pricing mechanism, which would impose a government-calculated price ceiling on gasoline sold at petrol stations across the Kingdom.

Domestic oil companies cautiously welcomed the pricing formula, which aims to ensure that prices at the pump reflect fluctuations in global oil prices.

But two international oil companies – Total and Caltex – said during a meeting with state officials yesterday that the formula did not account for their higher operating costs, and that a price ceiling goes against free-market principles.

The proposed mechanism is calculated based on the average Means of Platts Singapore (MOPS) benchmark, adding in taxes and VAT, as well as a premium that represents local operating costs, according to a draft prakas presented to petroleum retailers during a presentation at the Ministry of Commerce yesterday.

Chhoun Dara, secretary of state of the Ministry of Commerce, said Prime Minister Hun Sen had already signed off on the pricing mechanism, but the government would consider the concerns of petroleum retailers before finalising the prakas to regulate it.

During the discussion that followed the presentation, it was agreed that the ministry would re-calculate the price ceiling every 10 days using the pricing formula, and would meet with petroleum distributors every six months to discuss ways to cut expenses and unnecessary costs. Once implemented, fuel retailers that violate the price ceiling would be liable for fines.

“The mechanism is appropriate and acceptable... and we want all companies to agree with it,” said Dara.

While representatives of petroleum companies attending the presentation agreed with the basic formula, some disputed the premium calculation, which lumped several domestic and international companies together.

The mechanism would require Total, Caltex, PTT, Sokimex and Tela to keep their operating costs at or below $0.23 per litre. Meanwhile, Savimex and BVM would be required to maintain operating costs at or below $0.18 per litre, while LHR’s limit would be $0.15.

“If we had cut the operating cost to $0.23 per litre, the price of gasoline would have been 3235 riel in October last year,” Dara said.

Instead, Cambodians were paying on average 3,750 riel per litre at pumps, which was higher than consumers in neighbouring Thailand were paying to fill their tanks.

It was this discrepancy that led to charges of price gouging, prompting a series of meetings between the government and petroleum retailers that resulted in the new pricing mechanism.

Despite an agreement from all local companies, representatives of Chevron and Total argued that the $0.23 per litre premium should be set higher as their companies spend more on operating costs to ensure their high standards. They requested more time to discuss the pricing formula with the minister.

“We suggested a flexible premium cost,” said Daniel Hwang, product manager for Chevron (Cambodia) Ltd, which operates Caltex service stations. “We don’t care what price other companies sell at, we only care about our own policy. We have good quality and products, and excellent facilities, so we want to charge a higher price.”

He said free market principles dictate that prices should be flexible.

“If the customer wants to pay more, they’ll come to buy our product,” Hwang said. “If a handbag is good quality, people will buy it even if the price is higher.”

Mao Chanvirak, a representative of French-owned Total Cambodge, raised similar concerns on the fixed premium, stating that reducing operating costs to $0.23 per litre would be difficult.

“If we set prices like this then foreign companies will run away,” he said. “We spend a lot on salaries, which increase every year, and we have to maintain higher standards.”

Bin Many Mialia, the deputy managing director for cooperate affairs at Thai-owned PTT (Cambodia) Ltd, told the Post he “temporarily” agreed with the mechanism, and he suggested that the government push some companies that sell gasoline at a lower price to raise it closer to the proposed benchmark price.

Sokimex’s representative at the meeting, Chan Ung, said he agreed on the mechanism, but urged the government to enforce its fuel retailer standard to maintain a level playing field.

“We don’t object to the mechanism, but we must implement together,” he said. “Small companies have not complied with the government’s standard. Some companies do not even have stock, yet still they can operate.”

Dara said while discussions would continue with Chevron and Total, he would submit a report on the meeting to the prime minister by today and he expects the pricing mechanism to stand.

“I think we will follow this regulation,” he affirmed. “If we set a different price for each company, there would be no point in creating a pricing mechanism. It is a competitive market; if one company cannot handle it, there is another that can.”

Gasoline prices in Phnom Penh yesterday ranged from 3,450 riel per litre for regular to 3,800 riel for super.

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