Bill aims to level playing field

The Government has proposed in its 2022 National Budget’s Appropriation Bills and Taxation Amendment Bills to reduce the import tariff on refined fuel products to encourage competition in the industry. This would see a 5 toea reduction from the previous 10 toea tariff. Puma Energy PNG has expressed its concerns on the proposed changes saying a major impact on Puma would be the closure of its Napa Napa refinery by the end of this month. Business reporter DALE LUMA had a Q&A with the Independent Consumer and Competition Commission (ICCC) commissioner PAULUS AIN on the matter.

QUESTION: The new proposed amendment will see the 10 toea tariff for refined fuel reduced by 5 toea. This is to ensure competition in the fuel industry market. What are your comments on this?
Ain: To ensure a level playing field in the wholesale segment of the petroleum industry, the ICCC has been recommending to the Treasury Ministry to repeal the 10 toea per litre excise tariff on petrol and diesel.
The 10 toea per litre tariff applies only on imported refined fuel (petrol and diesel), and therefore, disadvantages importers of fuel, including Mobil Oil New Guinea Limited (Mobil) and others.
The dominant local refiner, Puma Energy PNG Refining Ltd (refiner) has some advantage over the other importers of fuel, given that the other importers would have to absorb this 10 toea per litre import tariff while the refiner would not, since it is refining locally.

If this is passed, and competition increases, are we to see possible decreases in fuel prices from 2022 onwards?
The 10 toea per litre tariff applies only to imported fuel and therefore, would complicate the ICCC’s fuel price-setting.
The ICCC has been excluding this tariff as it is not practical to identify, determine and implement two sets of retail prices, one for locally-refined fuel and the other for imported fuel.
Currently Mobil and other importers have been absorbing this tariff.
If the proposed amendment is passed, we will see a level playing field between the sole domestic refiner, Puma Energy PNG Refining Ltd, its subsidiary, Puma Energy PNG Ltd and other importers, including Mobil.
The proposed amendment will not affect fuel prices since the tariff has already been excluded in the Independent Consumer and Competition Comission-approved retail prices, and since fuel prices are significantly affected by movements in world oil prices and global geopolitical sentiments.

What is the current situation in terms of competition in the fuel industry and who are the dominant players?
The ICCC’s pricing oversight applies at the mid-stream (refinery), to the wholesale and distribution, and finally to the retail end of the petroleum industry.
The Napa Napa refinery is the only domestic commercial refinery in the country.
The refinery’s operation is governed by the Napa Napa project agreement, inherited by Puma Energy PNG Refining Ltd, during its acquisition of the refinery’s assets and operations from Inter Oil.
The ICCC is limited to only verifying the monthly import parity prices, which the refiner charges on bulk fuel, out of the refinery gate, to all fuel wholesalers.
At the wholesale segment, Mobil, Puma Energy and other wholesalers, importers and distributors supply bulk fuel for retail and commercial use.
The ICCC determines the monthly retail prices of fuel supplied to retail service stations by considering all costs factors at efficient levels.
The ICCC has strict price control measures at the wholesale and retail segments of the fuel industry, of which most retail sites are tied to supply contracts with specific wholesalers, resembling a vertically-integrated market.
Import competition has allowed other wholesalers such as Mobil, Islands Petroleum Ltd and New Guinea Oil Company to penetrate into high-cost remote locations, to supply fuel.
If any of these wholesalers or importers exit the market as a result of the 10 toea per litre import tariff, smaller independent distributors may enter these remote locations to supply fuel at significantly higher costs, without regard to quality, safety and reliability.

Are there any other comments you would like to make?
While the ICCC is advocating for a level playing field between local refinery and importers of fuel, it acknowledges the Government’s goal to increase tax revenue and protect industries and consumers.
Earlier this year, the ICCC recommended to the Government to repeal the 10 toea import tariff, which discourages importers, and to replace it with a 10 toea excise duty on both locally-refined and imported fuel, so as to create a level playing field for all wholesalers, importers and the local refinery.