Movement and Regulation of Petrol Pump Prices

Mr Lim Biow Chuan asked the Minister for Trade and Industry (Industry) whether the Competition Commission of Singapore regularly monitors the price of petrol in Singapore to ensure that there are no cartel practices that will breach the competition rules in Singapore.

Mr Ang Wei Neng asked the Minister for Trade and Industry (Industry) in view of local petrol prices not falling as much as crude oil prices, whether the Competition Commission of Singapore will consider launching an inquiry on the practices of local oil companies.

In 2015, the Competition Commission of Singapore (CCS) commenced a study on the factors affecting the movement of petrol prices in Singapore since 2010. CCS found that the petrol companies use Mean of Platts Singapore (MOPS) prices, not crude oil prices, in their cost accounting and pricing decisions for retail petrol. Crude oil price is the price of unrefined oil while MOPS price is the price at which petrol companies purchase refined wholesale petrol from the refineries. MOPS price tends to be higher than crude oil price as it includes the cost of refining crude oil into wholesale petrol.

In 2015, MOPS price made up less than one-third of the listed retail petrol price. Other components of retail petrol price include operating costs, taxes and duties, land costs, discounts and rebates. These non-fuel components have generally increased in the past few years.

The retail petrol price that consumers generally pay includes the petrol levy as well as discounts and rebates. Consumers enjoyed an average of about 18% in discounts and rebates off the listed price for Octane 95 petrol in 2014 through site discounts, loyalty programmes and credit card payment.

Between June 2014 and January 2016, crude oil price fell by an average of S$0.59, MOPS price fell by S$0.52 and the listed price for Octane 95 petrol fell by S$0.35. The pass-through, while relatively high at around 70%, is not complete because of the non-fuel components which make up more than two-thirds of listed retail petrol price. After taking into account the discounts and rebates that consumers enjoy and the levy increase in February 2015, the effective price that consumers paid for Octane 95 petrol fell by S$0.45, implying a pass-through of over 85%.

Over the six-year period between 1 January 2010 and 31 January 2016, CCS observed that the listed prices for Octane 95 petrol moved in tandem with MOPS prices. There was no significant variation between the time taken to either raise or lower the listed prices for Octane 95 petrol in response to changes in MOPS prices. The magnitude of the change in listed prices for Octane 95 petrol relative to the change of MOPS prices was also observed to be the same, whether MOPS prices increased or decreased.

Based on the information gathered, there is no evidence, Mdm Speaker, to suggest collusion in retail petrol pricing, even though petrol companies do monitor and react to one another's published prices. CCS will continue to monitor developments in the retail petrol market.

Mdm Speaker, I thank the Minister of State for the answer. We are not saying that they are colluding but we are not happy with the amount of the reduction in the petrol price. I would like to ask the Minister of State: did the Ministry study the price of petrol during the last cycle of upward trend of crude oil and how fast the petrol companies increased the petrol price?

The next question: could it be that there is a lack of competition in Singapore as there are just a few of them? Can the Ministry consider removing the three-quarter tank rule?

Mdm Speaker, between June 2014 and January 2016, MOPS price fell by S$0.52, or 53%, as I had said earlier, while the listed price of Octane 95 fell by S$0.35, which is about 15%. The smaller percentage drop largely reflects the fact that MOPS price made up only a third of the listed retail price. So, a third of S$0.52 would be a ballpark of about 15%. The lack of complete pass-through could also be due to changes in non-fuel components, as I have listed earlier.

As to whether we will be studying this further, yes, CCS will continue to monitor and study. We will be embarking on a study on the supply side of the equation to see if consumer behaviour does affect pricing from the petrol companies.

Mdm Speaker, I thank the Member for his question. Let me just go through what exactly is the difference between listed prices and effective prices. Listed prices are prices that are observed at petrol stations, for example, those that are displayed at the pumps. Effective prices are listed prices that exclude the levy hike introduced in February 2015, but have factored in the discounts and the rebates that are enjoyed by the consumers. The price that consumers pay will be the listed prices minus the discounts and the rebates.

The question of whether the petrol companies' prices will go up and how much the increase in petrol prices are affecting the operating income of the companies, for example, in terms of the profit margins that the Member was alluding to, on average, on a per litre basis, the operating income of petrol companies has generally increased over the past few years, but the increase is smaller relative to the increase in the non-fuel components that the companies have to shoulder.

Unfortunately, CCS is unable to provide further details about the change in the operating income at the company level, as such information is deemed to be commercially sensitive. As to whether the companies are profiteering, on average, the operating income of petrol companies has generally increased over the past years.

As I have said earlier, this increase is smaller relative to the increase in the non-fuel components, such as operating costs, taxes and duties, land cost, discounts and rebates. An increase in profit, in itself, is not a contravention of the Competition Act, unless the increase is due to market players engaging in anti-competitive behaviours, which would contravene the Competition Act. Based on information that CCS has gathered in the market study, there is no evidence to suggest whether there is any collusion in petrol pricing even though they do monitor the prices.

Consumers, generally, as the Member pointed out, do enjoy discounts and rebates off the petrol prices. In 2014, consumers enjoyed an average of about 18% discounts and rebates off the retail petrol prices for Octane 95. The discounts and rebates, especially for credit cards, are quite variable and are not easily comparable due to varying terms and conditions.

Mdm Speaker, may I ask the Minister of State whether MTI would consider publishing petrol prices, both retail and crude oil prices, and make them readily available to the public so that members of the public can see how the prices move? The Consumer Association of Singapore (CASE) did a study recently and realised that despite crude oil prices coming down, the price of Octane 98 went up by S$0.02. Clearly, there is some issue of education.

The other question that I wish to ask the Minister of State is whether MTI would consider encouraging a third party, for example, the cooperatives under the National Trades Union Congress (NTUC), to run another petrol company, so that we would have greater competition. This is very much like what the Infocomm Development Authority of Singapore (IDA) did to introduce a fourth telco to provide greater competition, so that our consumers have greater choices.

Mdm Speaker, I thank the Member for his questions. There is currently no legal requirement for petrol companies to display their pump prices prominently. CCS notes that the reason why petrol companies do not display their prices prominently is because, in certain jurisdictions overseas, petrol companies are accused of anti-competitive price signalling when they do so, when it is not legally required to do so in the first place.

That said, CCS recognises that improved price transparency in the retail petrol market may facilitate easier comparison and more informed petrol buying decisions by consumers. CCS will be conducting a customer survey on petrol demand in Singapore to understand consumer choices and their switching behaviour on petrol purchases, in particular, whether improving price transparency will facilitate a more competitive market.

As to whether we should be having another petrol player in the market, that will be a commercial decision that NTUC has to take. I am not sure whether NTUC is contemplating this in the first place.

I would like to seek the view of the Minister of State. I would like to ask whether, in the view of the Minister of State, the petrol companies are profiteering at the expense of consumers' interest.

Mdm Speaker, I thank the Member for his question. The petrol companies do make a profit but as long as the profit that they make is not in excess of what is a reasonable margin that other similar petrol companies make over the same time period, I do not think that they are making a profit at the expense of consumers.

Thank you, Madam. How does the Minister of State know that the profit made by the petrol companies is not excessive and, if so, by what standard?

Mdm Speaker, based on the CCS study, there is no evidence of collusion in pricing among the different companies. As far as the pricing of petrol is concerned for which the key variation in response to market crude oil prices is the MOPS pricing, that has been consistent with all the other companies. MOPS pricing was also used as an international standard in pricing for petrol sale across jurisdictions, so I think that is a fair method for pricing crude oil and how retail petrol is being used in Singapore.

Mdm Speaker, two clarifications. Firstly, I think there are two ways of addressing this issue. One is to regulate more and look more closely. The second is actually to open up competition. And I would prefer the second approach. One way of doing this will be, as the Minister of State had mentioned, to have more price transparency. In doing that, I would also suggest that any discounts and so on be factored in; otherwise, it is very difficult for customers to track what a 10% or 15% discount on this price is.

Secondly, I echo my colleague, Er Dr Lee Bee Wah's suggestion to review the three-quarter tank rule because, sometimes, the best way to raise competition may be to open up the market and allow the more price-sensitive customers to go overseas and top up their petrol tanks.

Mdm Speaker, I just want to clarify that with regard to actual petrol pricing, MOPS is a recognised international standard of pricing based on actual international trades from Singapore. The MOPS price is a price on which oil is traded in Singapore and the region. MOPS prices are also used in the region as a price benchmark to make an assessment of the financial value of oils which are transferred from upstream production to refineries and, subsequently, to the market.

For example, Australia imports wholesale petrol from Singapore based on MOPS price, which is a key pricing benchmark. So, in terms of pricing of petrol, how the price varies with crude oil changes, I think that has been used as a consistent and fair international benchmark.

As to whether we should continue to open up competition, as suggested by the Member, I think that is something that we will continue to study and see if the market is suitable for such an introduction.

Thank you, Mdm Speaker. I think the Minister of State has not answered both my questions. I asked if the Ministry studied the price of petrol during the last cycle of the upward trend of crude oil. What he explained on MOPS pricing, we do not understand, but perhaps we could take a look at the upward trend of crude oil prices in the last round and how fast the petrol companies increased their pump prices. So, could the Ministry study this?

The other question is on removing the three-quarter tank rule so that there is more competition.

Mdm Speaker, using a time series regression analysis, CCS has found that for a longer period that we looked at between January 2010 and January 2016, for every S$0.10 increase or change in the price of MOPS pricing, the listed price of the petrol for Octane 95 changed by about S$0.07 in the same direction on average, and this took place over a relatively short 10-day period. On average, there was no significance between the prices, whether it was on the rise or on the decline. So, on a day-to-day basis, the level of pass-through and time taken for adjustments may deviate due to fluctuations in the fuel and non-fuel components but, on the whole, the fluctuations do reflect the changes in the petrol pricing.

On the three-quarter tank rule, that is something we have to continue to study and see the merits of whether it is something we should implement.