Wed | Aug 16, 2017

Gas station shutdown will cost dealers millions

Published:Sunday | January 3, 2016 | 1:00 AMNeville Graham

The Government's decision to order the closure of pumps at some petroleum service stations across the island for selling contaminated gasolene could cost dealers millions of dollars for each week that the shutdown continues.

Last week, accredited officers from the Bureau of Standards were directed to serve closure notices on 17 gas stations after Minister of Science, Technology, Energy and Mining Phillip Paulwell disclosed at a press conference that some gas stations were found with contaminated gasolene based on samples taken at several locations across the island. Paulwell said the samples returned readings for contamination in 26 cases or 83 per cent.

According to information supplied, based on checks and calculations done by Sunday Business, if the stations are closed for just a week, it could cost the retailers millions of dollars in lost revenue.

Industry sources said the average gas station in Kingston and St Andrew and some of the island's major towns uses about 10,000 litres of gasolene per day, but there are some which sell more than twice as much.

LOSS CALCULATIONS

Sunday Business calculations, using Petrojam's average ex-refinery prices last week, show that the amount of selected fuels sold at a Kingston and St Andrew or a major town gas station may be broken down as follows: diesel, 1,500 litres at an ex-refinery price of: $83.85 would be $456,450; E10 90, 3,500 litres at an ex-refinery price of: $92.95 would cost $325,325, and E10 87, 5,000 litres at an ex-refinery price of: $91.29 would cost $125,775, for a total ex-refinery price of $907,550.

The marketing company would add a margin of between six and eight per cent on top of the ex-refinery price.There would be an additional transportation cost for the 10,000 litres of gasolene at about $1.20 per litre of $12,000. The 10,000 litres of fuel would then be delivered to the dealer for $992,154. The dealer's four to six per cent mark-up would take the overall value of the petrol to $1,051,683.24.

The net revenue to the dealer would be $59,529.24 per day which, spread over seven days would mean lost revenue of $416,704.58.

In the event of a shutdown, the industry sources said the dealer would face a hefty bill for remediation and recertification. The process is such that the dealer would have to hire a haulage contractor to remove the contaminated fuel and transport it to Petrojam's Marcus Garvey Drive, Kingston plant for reprocessing at the same $1.20 per litre cost. Petrojam would pay a fee to have the fuel re-processed and the dealer would have to repurchase that volume of fuel at the going ex-refinery rate.

The dealer would also have to pay to have the fuel tanks at the gas station flushed and cleaned. The sources said the cost of cleaning an average 5,000-litre tank is about $250,000. Since there are no less than three tanks at most establishments it follows that when one dealer is shut down for just one week, his bill for lost earnings and remediation would easily pass $1.2 million.

President of the Jamaica Gasolene Retailers Association (JGRA) Leonard Green is fuming at the prospect of such mounting costs, and has described the situation as a "debacle of unimaginable proportions".

OPERATING COSTS

In response to questions from Sunday Business, Green said "when you consider that there are eight pump attendants to pay along with two supervisors (at each gas station), that is easily over $100,000 for salaries that are not supported by this lost income. We still have to pay light bill and security costs. It is crazy."

The JGRA president said he would be calling on all affected dealers to resist any attempt to make them bear the costs.

"We are very clear that since we are contractually bound to take product from a particular distributor and if it is found to be contaminated, then they should bear the costs that arise. We want compensation," Green said.

He said he would also be instructing dealers not to pay the costs of remediation since such costs would drive them out of business.

Margins are "already razor-thin and dealers cannot be asked to foot such a big bill," he added.

neville.graham@gleanerjm.com