Legislative Council Questions

Question asked by Hon Fred LI regarding monitoring the price of petrol

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Date of Meeting : 8 May 2002
Asked by : Hon LI Wah-ming
Replied by : Secretary for Economic Services

Question :

Oil companies raised oil prices three times in March and April this year. These companies are criticised for being "quick-in-raising and slow-in-reducing" when adjusting oil prices, and for not providing the Government with the import prices of oil on the ground of commercial secret, resulting in the Government not having adequate information to monitor the retail prices. In this connection, will the Government inform this Council:

(a) whether it has considered collecting oil duty according to the import prices instead of the retail prices so as to enable the Government to have a full picture of the oil prices;

(b) whether it has considered introducing a mechanism to monitor oil prices effectively in the long run; and

(c) as the Government has stressed that it would conduct a study on introducing competition, including the possibility of providing sites for the development of oil storage facilities and filling stations for new operators, whether it has assessed the time needed to complete the study and the possible site area involved; and whether it has put in place any plan to introduce anti-trust laws as a complementary means when introducing competition?

Reply:

Madam President,

Hong Kong has always been a free market economy. We believe that supply and demand as well as prices are best determined by market forces. For this reason, oil prices have all along been the decision of oil companies, having regard to commercial principles and their operating costs. The role of the Government is to maintain a steady supply, increase the transparency of oil prices as far as practicable (such as urging oil companies to announce each price adjustment and account for the rationale and basis for the adjustment), and enhance competition by removing barriers to entry into the fuel market. We therefore consider it inappropriate to introduce a price control mechanism.

(a) On the question of duty, currently the Government levies specific duties on hydrocarbon oils based on local sales volume. We consider the existing duty system appropriate. It is also widely adopted in other overseas economies. We have no intention to change the existing duty system for the sake of obtaining import prices of oil companies.

(b) Hong Kong has no indigenous supply of oil and has to rely on import. Import prices of oil are affected by various external factors beyond the control of the local market and the Government. Nevertheless, in view of public concern about oil prices, the Economic Services Bureau closely monitors the retail prices of unleaded petrol and ultra low sulphur diesel (ULSD) in the local market, the latest Singapore FOB prices (a commonly adopted benchmark for petrol and diesel pricing in the Asia-Pacific Region), the monthly weighted average import prices compiled by the Census and Statistics Department (C&SD) and prices of crude oil. The price data for the period from January 2001 to the present are set out at Annexes A and B for Members' reference. The data show that the trends in the retail price of local petrol and ULSD are broadly in line with those of the monthly weighted average import prices compiled by the C&SD and the Singapore FOB prices, and reflect essentially external factors.

(c) While we do not agree to a price control mechanism, we have taken positive action to facilitate the development of, and encourage competition in, the fuel market. Measures include -

1. waiving, as from July 2000, the requirement that a tenderer bidding for petrol filling stations (PFS) sites must hold a Special Import Licence or a fuel supply contract;
    
2. putting up for open tender existing PFS upon expiry of their leases;
    
3. publicising the fact that the Government is willing to consider applications for combined development of PFS with other retail uses and for modifying land use for the development of PFS; and
    
4. specifying in new land leases that operators are required to put up oil price information boards, to enhance transparency of competition on oil prices.

The above measures have taken into account needs of new entrants in entering into the PFS market. In the meantime, we will continue work on identifying suitable sites for PFS use. In fact, PFS sites are put up for open tender from time to time. This year, the Land Sales Programme includes ten PFS sites to be put up for tender as from April. And, new PFS sites and existing PFS with expired leases in the urban or newly developed areas will be included in future Land Sales Programmes. As regards the construction of oil storage facilities, we have also identified suitable sites. The land requirement will depend on actual market demand. Our understanding is that there is spare storage capacity in the oil depots at Tsing Yi, and new operators may, if so wished, negotiate with the oil companies concerned to explore the feasibility of hiring their spare storage facilities. As the requirements for a tenderer for PFS sites to hold a Special Import Licence or a fuel supply contract have been waived, new entrants to the retail market may choose to buy oil from other oil companies in the first instance, and may not need to have their own storage facilities at the initial stage.

The promotion of competition is a continuous process : we will continue to explore further measures to enhance competition as necessary. However, we do not agree to the introduction of an anti-trust law, as this is not the only way to promote competition. More importantly, Hong Kong being a free and open economy, market forces are able to operate effectively without a comprehensive competition law. As I pointed out earlier, the Government promotes competition in the fuel market by maintaining an open market and removing barriers, so that prospective operators can enter the market freely, thereby enhancing economic efficiency.

Thank you, Madam President.