Between a rock and a hard place
Published: Aug 18, 2011
The Bahamas Petroleum Retailers Association (BPRA) has voted to strike. The retailers have long complained that they think it’s unfair that the government has refused to increase fuel sales margins.
Eighty-five percent of the service stations have agreed to stop purchasing gasoline from their suppliers until the government increases the margins.
The BPRA has asked the government to increase the sales margins for retailers to $0.74 per gallon for gasoline, and $0.47 per gallon for diesel. The sales margins now are $0.44 per gallon for gasoline and $0.19 per gallon for diesel.
Retailers feel they have been mistreated, as the fixed margin system has been in place for three decades.
Fuel prices have broad implications for the economy. The cost of fuel is factored into the cost of goods and services.
And in the past government officials have argued that “given the local small market and limited competition, margin control is one way to ensure that price movements do not cause too much disruption”.
The government, which has said it is considering raising the margins, now finds itself between a rock and a hard place.
The Bahamas has not clearly emerged from the recession caused by the financial crisis of 2008.
Raising the cost of fuel to consumers by raising the fuel sales margins would serve as a massive tax increase across the economy. This would help ensure that the weak growth projected by forecasters this year and next year does not materialize.
And, as stated in this space before, no government concerned with winning a general election is going to be eager to grant fuel retailers margin increases near to a general election.
Bahamians, already disturbed by the high price of fuel, are not likely to be sympathetic to the retailers’ cause. Gasoline in New Providence is over $5 per gallon, and in the Family Islands it’s over $6 per gallon.
The price of oil per barrel is close to $90 in the international markets. There are also fears that when a recovery eventually resumes the price will increase further.
The retailers are being squeezed by wholesalers who have negotiated aggressive terms as a part of distribution contracts. Many local gas station dealers pay leases to distributors, although some are dealer owned. Dealers must also pay for fuel in advance before selling, which obviously has an impact on cash flow.
Most dealers rely on convenience store sales or other services to make ends meet. However, some of those dealers have to pay to the distributors a percentage of in store sales.
The strike will lead to added focus on the sector but successive governments have not changed the margins in favor of the dealers. Strike action is very dangerous.
If retailers are already suffering, won’t shutting down hit their bottom lines even more, possibly forcing more retailers out of business and causing more hardship to station owners, employers and their families?
There is another problem. The government could decide that the dealers are not necessary, allowing and urging the distributors, local and foreign, to operate stations. Such a move would send them all out of business and eliminate much of the existing margin.
It will be interesting to see what the industry looks like when this dispute is resolved. The issue is complicated and there are no easy answers.