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Gas price freeze ‘not sustainable’ as fuel companies warn of hike in cost of imports

Fuel companies are warning that a freeze on the price at the pumps is not sustainable. (File photograph)

A freeze on gas prices is “unsustainable”, fuel companies have warned.

A block on pump payment increases has been touted by David Burt, the Premier, as one of the Government’s flagship moves to try and limit the cost-of-living crisis.

But fuel companies said they have taken a “significant” financial hit because of the measure introduced in March, and that the situation cannot go on indefinitely.

Mr Burt told MPs last week the Government was taking the brunt of the cost of the price freeze through Customs duty cuts, but fuel importers said the cuts had not happened yet, despite the freeze being in place for three months.

Suppliers said that the cost of importing gas increased by 43 per cent from March to the end of June, and by 40 per cent for diesel in the same period.

The warning comes in the wake of soaring food prices, and a move by Belco to hike up the cost of energy.

Alcindor Bonamy, general manager of Sol Petroleum Bermuda, said: “As a fuel importer we are not immune to the impact of the global price increase, nor the local price freeze.

“Unfortunately, an indefinite price freeze at the pump will be unsustainable for the operation’s required standards.

“This would diminish our capability to secure the required return on investment to conduct the business under the highest operational standards that we are committed to in the communities we operate and are not negotiable to 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 the government fuel duties remained.

“It is important to note that we have been compliant with all requirements at a significant loss since then.

Sol’s next shipment is due 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 increase will be handled and are awaiting responses on prior shipments.”

Jermaine Simons, sales manager at RUBiS Energy Bermuda, warned that import costs had soared over the past three months.

“RUBiS can confirm that here has been no change in the value of the fuel importation rate that it is required to pay the Bermuda Government.

“Historically, for this side of the Atlantic Ocean, any cargo procured in June would typically be more expensive that cargo procured in March, due to increased demand from regional countries.

“For 2022, there have been various external factors that saw a heated rise in fuel pricing that is beyond the average price cycles

“For example, a cargo procured on June 24 would be 43 per cent more expensive (gasoline) and 40 per cent more expensive (diesel) than cargo procured on March 16.

“Please note, this is just the base refinery price, and does not include any price increases from other cost factors – eg, refinery premium, shipping, etc.

“We have seen costs incurred related to tanker shipping increase by 17 per cent compared to previous shipments.

“We do not anticipate the costs of landing fuel inventory to begin a downward cycle in the immediate near future.

“Any changes in the price listed at the pump is under the remit of the Ministry of Finance. The wholesalers have no control over the costs to procure product and have to purchase at market levels.

“For RUBiS, we anticipate that we would need to fund the procurement of the next shipment in time for it to arrive by the end of July, based off the latest forecast modelling.

“It is important to note that RUBiS has been compliant with every request from the ministry, and all of the operational losses have been entirely incurred by the petroleum wholesalers.

Questions to Government

How long is the gas price freeze expected to last?

When will the importation duty be cut?

Does the Government think it is fair for the fuel companies to shoulder this burden?

How much will this cost the Government financially?

“Since that March replenishment cargo, there was another replenishment cargo received at the end of May, and current demand/inventory level calculations have determined that a replenishment cargo will be required in late July.

“Short version, for RUBiS, the most recent two replenishment cargos have averaged 2.2 months’ supply.”

Mr Simons added: “As indicated by the Premier in his April 27 press release, there was an agreed solution between the ministry and the petroleum wholesalers that would adjust the price build-up mechanisms that set the retail pump price.

“We look forward to the implementation of this solution.”

The Premier told the House of Assembly last week that most of the cost of the freeze in gas prices was being carried by Government owing to a reduction in import taxes.

Mr Burt said: “There has been no compensation. The Government has made no payments to fuel companies.

“What we have done, is that we have put in place a pricing mechanism that is reducing the taxes to make sure that the cost does not increase.

“There is a little bit of shared sacrifice which may be coming from some of the fuel importers due to the variances, but the majority of this is being absorbed by the Government in the form of a reduction in the gasoline import taxes.

“At this time, it is primarily being borne by the Ministry of Finance and in the form of reduced taxes.”

One Bermuda Alliance’s Craig Cannonier accused the Premier of performing a “con trick”.

“The Premier has not reduced the Government percentage on fuel, only the corporate side has.

“Why is the Government taking credit for something they didn’t do? The corporate side has given up their share of increases to help Bermuda.

“We should be championing them for doing their part – when will the Government start doing its part?”

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Published July 09, 2022 at 8:00 am (Updated July 08, 2022 at 7:35 pm)

Gas price freeze ‘not sustainable’ as fuel companies warn of hike in cost of imports

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