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Fired up over fuel

Published:Tuesday | December 23, 2014 | 12:00 AM
Leonard Green
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Petrojam to defend gas prices amid PSOJ criticisms

Christopher Serju, Gleaner Writer

The state-run oil refinery Petrojam Limited has promised a fulsome response today to allegations by the Private Sector Organisation of Jamaica (PSOJ) that it has consistently failed to pass on savings to consumers, consistent with declines in oil prices on the global market.

In a press release yesterday, the PSOJ said the country does not benefit enough when prices go down, citing a comprehensive study conducted by its research department over the 11-month period from January-November as the basis for its allegations.

It was in response to complaints from members that the organisation undertook the study, with president William Mahfood declaring the findings had justified the claims.

"The analysis points to the conclusion that when oil prices increased globally, PCJ's (Petroleum Corporation of Jamaica) increases were more closely aligned with these, but the response to price decreases by PCJ were not as responsive over the time period studied," he said.

"The retailers, however, have followed the same pattern of response to cost movements from PCJ. The conclusion from

this, therefore, is that PCJ had not passed on fully the oil price decreases at the same rate to retailers over the time period studied."

He continued: "The PSOJ is urging that the same response to price movements be maintained when prices are going up or down, especially as PCJ is in a monopoly situation, and recognising that costs from oil prices remain a significant charge to productivity in Jamaica."

However, when contacted, a Petrojam official directed the newsroom to an advertisement under the headline 'Gas Prices Explained' in this week's Sunday Gleaner in which all the issues raised by the PSOJ were clarified, with local prices reflecting global movements. For instance, the ad indicates that at the retail level for the period June-December 2014, Petrojam's ex-refinery prices for 87 and 90 gasolene had been reduced by about 25 per cent.

This, it said, correlates with price movements over the same period in Miami (Florida), where the price of regular gasolene has been reduced by 24 per cent and by 19 per cent for premium gasolene over the same period.

In response to a letter to the editor under the headline 'Gas prices still too high', published on November 14, the company had explained that price movements at Petrojam reflect movements in foreign currency exchange rates and changes in the US Gulf Coast Reference prices for finished products; not changes in crude oil prices. Reports in the local media are usually on movement in West Texas Intermediate (WTI) prices, which is the most widely quoted benchmark for crude in the United States.

It continued: "It is important for persons to make this distinction, since very often, as it was in this instance, movement in crude oil prices is misinterpreted as product price movements."

In fact, Leonard Green, president of the Jamaica Gasolene Retailers Association, admitted in an article published in The Gleaner last Thursday that motorists were seeing the requisite savings at the pump.

"What Petrojam is passing on is consistent with the general trends, in my mind, certainly in the US market," Green had told The Gleaner.

The JGRA president noted that consumers were unrealistic in their perception that the exact level of reduction announced on the world market would be reflected at the pump and with immediate effect.

This was not feasible, he explained, since the price is usual for crude oil, while Petrojam sells refined products, which attract add-on costs.

He explained: "When they hear crude oil prices, remember these are not even the prices that will be applicable immediately. Those prices are for next month's deliveries, and so the market does lag behind the announcement of those prices."

christopher.serju@gleanerjm.com