Cost of petrol dips as price caps take effect

Current fuel prices are displayed in front of a Caltex petrol station yesterday in Phnom Penh. Heng Chivoan

Cost of petrol dips as price caps take effect

Wed, 16 March 2016 ppp

Sor Chandara

Prices at the pumps dropped yesterday as the government’s fuel-pricing formula came into effect, with the country’s major petrol retailers advertising regular gasoline at 3,050 riel per litre, premium at 3,150 riel per litre and diesel at 2,700 riel per litre, in accordance with government-mandated price caps.

Yesterday marked the first day since the Ministry of Commerce announced the new price ceilings, which are calculated according to a formula based on the average Means of Platts Singapore (MOPS) benchmark, adding in taxes, VAT and local operating costs.

The government adopted the fuel-pricing mechanism last week with the consent of all major petroleum distributors operating in the Kingdom, ending a months-long effort to create a flexible pricing mechanism that would make local petrol prices responsive to changes in global oil prices.

Bin Many Mialia, marketing division manager for PTT (Cambodia), said the new price caps required PTT and its chief competitors to drop their prices an equal amount to a government-set level.

“It has affected our business a bit, but it is acceptable,” he said. “If we didn’t agree with it, there would be no solution for the pricing mechanism.”

The Commerce Ministry has said that it will recalculate the price ceilings every 10 days, namely on the 1st, 11th and 21st of the month.

Mialia said he expects the next review would see prices inch up again if global oil prices have bottomed out, as many analysts predict.

He added that despite yesterday’s price drop, he does not expect the company to sell more gas as price-conscious consumers tend to purchase cheap petroleum smuggled in from abroad.

“Some companies sell lower than this price cap,” he noted. “We don’t mind, but the question is how the government will deal with it.”

Um Vuthdara, a lecturer in the Faculty of Economics at Pannasastra University, said lower fuel costs should help reduce consumers’ expenses, which could improve the standard of living.

While this will make people happy, he said the mechanism should not be considered a long-term solution, as according to free market principles the government should not intervene in pricing.

That said, he conceded that “if the government didn’t set the policy, gasoline prices would not have decreased”.

Tuk-tuk driver Doung Thouk was relieved to see the price of regular gasoline drop by over 5 per cent this week, but called for a further decline to ease the burden of growing living expenses.

“I want the price to fall even further because our income is still low and irregular while price of other products in the market continues to get expensive,” he said.

According to a prakas issued on March 9, petroleum retailers found selling gasoline at prices above the cap will be fined $1,000 for the first violation. Repeat offenders will be ordered temporarily shut.