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Fuel wholesaler calls for price control ‘relief’

Fee rise means possible 30 percent-plus profit loss a year after Rubis entered market
  • Alejandro Sanin.

Guardian Business Editor

Published: Oct 09, 2013

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A major fuel wholesaler is calling on the government to finally allow an upward adjustment of decades-old price controls on fuel sales to permit some “relief” from what would otherwise be a “very serious impact” on the company’s bottom line from increasing business license fees.

Rubis has entered into discussions with the government on the issue, urging it to implement a “fair” business license fee increase and/or offer some relief via shifts in applied margins, suggesting the proposed 250 percent rise in fees applied would eat up “25 to 30 percent” of its margin on fuel sales, and ultimately wipe out a greater proportion of its net income.

In an interview with Guardian Business, Alejandro Sanin, managing director of Rubis’ Western Caribbean operations in The Bahamas, Turks and Caicos and the Cayman Islands, noted that the regulated nature of the fuel wholesaling business by which the government mandates maximum mark-ups on fuel sold, makes it impossible for the company to pass on the additional cost of the business license fee rise to consumers.

Critically for Rubis Bahamas, he said the business license fee rise was not contemplated by the company when it analysed whether to enter the Bahamian fuel market just over a year ago, in 2012, acquiring Chevron’s assets under the Texaco brand.

“It was not on the table,” said Sanin. “The government needs revenue but we need a balanced return on capital employed.

“These are also challenges from the economic and financial perspective...to ensure that we have a sustainable long term, stable regulatory framework based on the business economical analysis that we made when we decided to enter.”

The government announced in July that as of January 2014, business license fees will rise from 0.5 percent of revenue, to 1.75 percent, rankling business operators across the country - but especially those such as food retailers who operated in a price controlled environment.

Sanin identified the business license fee issue as one of the major challenges for the company in the Bahamian environment, even as it sees a variety of “big opportunities” from its investment here.

“There are a lot of opportunities in a market like The Bahamas. It’s a sophisticated market, you see the type of investments made in the highways, the airport, you are 35 minutes from Miami on the plane, the banking system is well developed, and there are a lot of opportunities to grow the business.

“The Family Islands offers a lot of opportunities to supply, in terms of supply and logistics and plans that we have to grow our presence in those markets. This is the positive side.

“We like the business, we like the market, we are very happy to introduce the Rubis brand, we’re going to do our best to delight and exceed the expectations of our end consumers, however we would also like to see a proactive approach from the government to provide us with the margin relief at least to compensate that business license increase.”

Sanin said he remains “very optimistic” that the government can reach a “balanced decision” about how to proceed with its revenue-raising efforts.

Noting that fuel wholesalers and retailers have been asking for “margin relief” for decades, he suggested the business license fee adjustment should provide additional impetus for government to consider making the change.

“The last time there was margin relief for diesel in this market was in 1973, and for gasoline in 2002. We’ve been working hard to communicate with authorities on the fact that we need the margin relief to compensate for the cost of the product and to keep the percentage of our gross margin.

“We have not been successful, and the former Texaco and other players were not successful at that time in getting that margin relief, and now one year after our decision we see this increase in business license fee.”

Sanin said that discussions are in their “initial stages” and the company plans to do its “due diligence” in order to present the government with a strong argument as to why it should adjust its license fee plans, and/or price controls as far as the fuel wholesalers are concerned.

To date, the Managing Director said the government has taken a “very proactive approach” to the discussions.

“We have had a very positive conversation and communication with the government.”

However, the government will undoubtedly be wary of allowing any adjustments in margins on fuel in an environment in which consumers and business operators are already anxious about possible price rises associated with the implementation of value added tax (VAT) and in which consumer confidence remains depressed, and unemployment, relatively high.

As for what the consequences would be if the government does not reconsider the fee rise on the sector, or adjust margins, Sanin said: “This is a scenario that we haven’t considered. We are optimistic.”

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