Oil companies are warning that a price freeze at the pump is not sustainable. (file photo)
A gas price freeze is “unsustainable”, oil companies have warned.
A freeze on pay-at-the-pump increases has been touted by Prime Minister David Burt as one of the government‘s flagship measures to try to contain the cost-of-living crisis.
But oil companies said they suffered a “significant” financial hit from the measure introduced in March, and the situation cannot last indefinitely.
Mr Burt told MPs last week that the government was bearing the cost of the price freeze through tariff cuts, but fuel importers said the cuts had not yet taken place, although the gel has been in place for three months.
Suppliers said the cost of importing gas increased by 43% from March to the end of June, and by 40% for diesel over the same period.
The warning follows soaring food prices and Belco’s decision to raise the cost of energy.
Alcindor Bonamy, Managing Director of Sol Petroleum Bermuda, said: “As a fuel importer, we are not immune to the impact of rising global prices, nor of local price freezes.
“Unfortunately, an indefinite freeze on pump prices will be unsustainable to the required standards of operation.
“This would reduce our ability to secure the return on investment required to conduct the business to the highest operational standards to which we are committed in the communities we operate and which are non-negotiable with Sol.”
He added: “In March we were notified of a price freeze to be implemented using the February price pump.
“Despite its negative impact and our attempts to find an alternative solution, the decision on government fuel taxes has stood.
“It is important to note that we have complied with all requirements with a significant loss since then.
Sol’s next shipment is expected to arrive this month and Mr Bonamy added: “As such, we are in discussions with the Ministry of Finance on a solution as to how any cost increases will be handled and are awaiting feedback. answers on previous expeditions.
Jermaine Simons, sales manager at RUBiS Energy Bermuda, warned that import costs had skyrocketed over the past three months.
“RUBiS can confirm that there has been no change in the value of the fuel import rate it is required to pay to the Government of Bermuda.
“Historically, for this side of the Atlantic Ocean, any cargo purchased in June would generally be more expensive than cargo purchased in March, due to increased demand from countries in the region.
“For 2022, a variety of external factors have resulted in a sharp rise in fuel prices that exceeds average price cycles
“For example, a cargo purchased on June 24 would be 43% more expensive (petrol) and 40% more expensive (diesel) than the cargo purchased on March 16.
“Please note that this is the base refinery price only and does not include any price increases due to other cost factors – e.g. refinery premium, shipping, etc.
“We found that tanker shipping costs increased by 17% compared to previous shipments.
“We do not expect fuel inventory landing costs to begin a downward cycle in the immediate near future.
“Any change in the price indicated at the pump falls within the jurisdiction of the Ministry of Finance. Wholesalers have no control over product supply costs and must buy at the market level.
“For RUBiS, we anticipate that we would need to fund the purchase of the next shipment in time for it to arrive by the end of July, based on the latest forecast modeling.
“It is important to note that RUBiS responded to all requests from the ministry and that all operational losses were entirely borne by the oil wholesalers.
Questions to the government
How long is the gas price freeze expected to last?
When will import duties be reduced?
Does the government think it is fair for oil companies to shoulder this burden?
How much will this cost the government financially?
“Since this March replenishment shipment, another replenishment shipment has been received in late May, and current demand/stock level calculations have determined that a replenishment shipment will be required in late July.
“Short version, for RUBiS the last two supply shipments provided an average of 2.2 months of supply.”
Mr Simons added: “As indicated by the Prime Minister in his April 27 press release, there was an agreed solution between the department and the oil wholesalers which would adjust the price formation mechanisms which set the retail price at the pump.
“We look forward to the implementation of this solution.”
The prime minister told the House of Assembly last week that most of the cost of the petrol price freeze was borne by the government through a reduction in import duties.
Mr Burt said: ‘There was no compensation. The government made no payments to the oil companies.
“What we’ve done is we’ve put in a pricing mechanism that lowers taxes to make sure the cost doesn’t go up.
“There is a bit of shared sacrifice that may come from some of the fuel importers due to the discrepancies, but the majority of that is absorbed by the government in the form of lower gasoline import taxes.
“At the moment it is mainly taken care of by the Ministry of Finance and in the form of tax cuts.”
Craig Cannonier of One Bermuda Alliance accused the Prime Minister of committing “sleight of hand”.
“The prime minister did not cut the government’s percentage on fuel, only the business side did.
“Why is the government taking credit for something it didn’t do? The companies waived their share of the increases to help Bermuda.
“We should stand up for them for doing their part – when will the government start doing their part?”