Consumers saving thousands of rupees at the pump
Consumers in Seychelles are taking full advantage of cheap petroleum products windfalls. With cost of petrol plummeting on the world market coupled with the stringent but farsighted policies of the local authorities, prices at the pump have hit a five-year old low.
The R16.85 tag on the most widely used MOGAS product is the lowest since April 2010. Latest figures reveal a fall for the 12 consecutive months with a knocked down price from R21.97 in August last year.
A stabilised rate of exchange of the US dollar to the rupee and oil prices hovering around US $47 on the world market along with a responsible management of imports by the Seychelles Petroleum Company Limited (Seypec) has helped to trigger a comprehensive push down. Between August 2014 and September 2015, the average pump price of petrol has dropped substantially by 23.3 %.
Consumers cashing in
Simple calculations based on a regular domestic consumption of MOGAS show that without these most welcome price reductions, the cost of fuelling a car for 52 weeks would have peaked to approximately R34,000. The savings following this tumbling prices’ galore is nearing just under R8,000 over the 12-month period ending September 2015, assuming that the full reduction was for the full period.
“We have a multi-fold national mission,” a Seypec source told Seychelles NATION.
“Seypec operates as a commercial company and operated as such with no funding or subsidies from the government. Our socio-economic mission is primarily to protect the interests of the customer but it has other fundamental mandates for the country at large. This takes the form of subsidised prices to the petroleum products sold on Praslin and La Digue. We strive hard to guarantee a fluid distribution by ensuring a non-failing import of the products. This keeps the economy running at full speed and we also invest in customer oriented infrastructure such as petrol stations though these are not commercially viable operations. Our company keeps the country with full and reliable energy at all times and this is flawlessly done according to our national strategic mission. Seypec’s core business returns is largely derived from its re-export activities that constitutes 65% of its business front.”
In Seychelles, fuel price is determined by many components from the landed product cost per metric ton, the exchange rate of Seychelles rupee to the US dollar, the local taxes imposed by the government as well as the pipeline dues payable to the Seychelles Port Authority, and finally the approved and constant margins to cover administrative and other distribution costs.
The product cost and the rate of the USD rate of exchange are variable, while other costs which include taxes, pipeline dues and margins remain relatively fixed. Seypec currently reviews fuel prices on a weekly basis and takes into account exchange rate fluctuations as the company’s purchases average US $2M weekly. Similarly at each price review, the change in the product cost is also considered. This is what led to no less than 17 decreases from August 2014 to September 2015.
The import process
The importation of petroleum products is a complex one and requires strict respect of legal procedures highlighted by transparent procedures. Seypec strongly maintains a high level of best practices which an inside source confirms.
“We enter into a contract with a supplier through a tender process with predetermined set conditions. Tenders are made public every three years and is open to any interested party. The tender is advertised at both local and international level. This is done through daily publications on our website as well as direct follow-ups to all parties who had previously expressed interest with the last tender receiving 17 interests and 7 final submissions. The tender process is monitored through a tender committee which has representatives from the Ministry of Finance, the Fair Trade Commission, the Public Enterprise Monitoring Commission and Seypec technical staff. The National Tender Board is also invited to the opening of the submissions. Bidders are invited to the opening and the final award is based on the recommendation of the tender committee and endorsed by the Seypec board of directors and the Ministry of Finance, Trade and the Blue Economy. The import exercise is carried annually through price negotiations with the selected supplier. The basis of the prices is on PLATTS, a daily publication of energy information and is a key source of benchmark price assessments in the physical energy markets to provide reliable market-based price information on the oil industry. Seypec has historically used PLATTS as a basis for all of its pricing as it enables the pricing process to be transparent as well since it is reflective of global changes in oil prices. PLATTS is a leading global provider of energy, petrochemicals, metals and agriculture information, and a premier source of benchmark price assessments for those commodity markets. Since 1909, PLATTS has provided information and insights that help customers make sound trading and business decisions and enable the markets to perform with greater transparency and efficiency. Consignments are now bought in smaller sizes and more regularly to allow us to reflect market prices in our own pricing.”
A projected savings for the country in terms of its total energy imports for domestic consumption is expected to be US $42 million in 2015. These savings are to all domestic consumers of energy imports with larger benefits to the local fisheries, tourism establishments and the industrial sector from August 2014 to September 2015. Actually, from a comparison exercise made with neighbouring Mauritius, Seypec gets a better deal on its landed cost in Seychelles by 11% despite the immense difference in volume purchased. Seychelles seems to edge a larger consumer when it comes to negotiating and obtaining better fuel prices.
Change in prices at the pump
“The product bought today at the pump was made with crude oil bought when prices were higher,” an economist told Seychelles NATION.
“So it takes a while for the price savings to move through the supply chain. There are other costs such as transport, supply costs and retail margin which may vary but won’t fall by anywhere near the same degree as the commodity. There is a time delay of several weeks between movements in the unrefined crude oil market and filtering through to the local pumps in Seychelles. The product has to be sold, transported to refinery, refined, shipped to Seychelles, stored and distributed to the retailer. International petrol prices are very reactive to the daily changing geo-political situations in various parts of the world. Such events may include financial growth forecasts, speculations in such markets, announcements from major leading markets like USA or China, civil strikes and wars in oil producing countries.”
Further add-ons to the price include the high maritime insurance on account of piracy risks that insurance companies continue to call for.
Falling prices trend
Economists are also quick to outline the phenomenon. “Prices are essentially governed by actual supply and demand, and partly by expectation. Four factors are now affecting the picture. Firstly, demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to other fuels. Secondly, despite the situation in Iraq and Libya – two big oil producers with nearly 4 million barrels a day combined – world output has not been affected though. Thirdly, the USA has become the world’s largest oil producer and though it does not export crude oil, it now imports much less, creating a lot of spare supply. Finally, the Saudi Arabia and their Gulf allies have decided not to sacrifice their own market share to restore the price. Saudi Arabia can tolerate lower oil prices quite easily. It has US $900 billion in reserves. Its own oil costs very little (around US $5-6 per barrel) to get out of the ground.”
As long as the oil prices will continue its downward trend, consumers are sure to benefit at the pump and ease the pressure on their budget. In Seychelles, Seypec is on a daily alert to pass on the benefits of falling prices to the consumers. It is to be wished that the current oversupply of oil will be a long-term strategy of main producing countries to keep oil prices low.
There are tangible signs that motorists may well enjoy low prices for some time to come. But a policy of caution and extreme care is the order of the day at Seypec and the situation may well turn the other way round very quickly. No one foresaw the fall in petrol prices six months ago and no one can bet on against any rise to exponential factors to the industry. Motorists might as well enjoy the present situation by easing the pressure on their purse as there are economic reasons to believe that they may continue to benefit from low prices in the short not to say medium term.
Source : Seychelles NATION