Fuel price hike a big concern

THE country has experienced hikes in fuel prices over recent months as a result of global oil prices as the Russia-Ukraine war continues. The PNG business community has expressed its concerns stating that consumers will bear the brunt of these price increases if there is no direct Government intervention and that consumers, vehicle owners, businesses, and electricity suppliers will be affected. The global crude oil price as of Tuesday was at US$105.50 (K349.46) per barrel. Below are comments from various industry sources, who spoke to The National Business Reporter Dale Luma, on the cause and impacts of the increases in fuel prices in the country and short term solutions.

Puma Energy PNG Ltd country manager Hulala Tokome

Pricing in PNG is based on the previous month’s Mean Of Platts Singapore (Mops) pricing.
Hence, based on March’s Mops, the significant increase in crude prices globally had an impact on April’s import party price or IPP.
The movement up in oil prices is being felt around the world.
The most evident is the increased global uncertainty and impact caused by Russia’s invasion of Ukraine.
As we have a month’s lag the impact on global oil prices for April have slightly dropped which we should then see a drop in prices in May, however we are mid-month through April and there are various elements globally that can again trigger a surge in prices.
Locally, the price of fuel has gone up by close to K1.50 per litre just over the last couple of months in main ports and much higher in outer ports.
Fuel in any business is a significant cost component so when fuel prices increase based on global oil prices, businesses struggle to absorb the added costs.
This leads to many companies compensating for rising costs by ultimately passing on costs to consumers via higher prices for their goods and services.
As I have mentioned previously, another avenue open to the Government to drive economic activity and support communities would be to reduce excise on petrol from a high 62 toea per litre to a comparable rate equivalent to diesel at 23tpl.
This would also have a much greater impact on the lives of our people, particularly within the rural communities and villages who use petrol/zoom.
Reduction of import tariffs on petroleum products will not have a flow-on benefit for the consumer, and will only increase margins for non-refining importers as there is currently no avenue for distributors to pass the import tariff to the general public.
A number of countries have implemented subsidies within their economies to counter this global issue.
Brent Crude is at US$105.20 (about K349) today (yesterday). It had peaked in March and prices have steadily dropped since then. Given the one month lag on IPP in PNG, we will realise the drop in prices in May based on April’s Mops pricing. Again, hope that no other factors cause global prices to increase.
We also refine Kutubu crude at the Napa Napa refinery which again we purchase at global crude prices from Santos/Oil Search, just like any other crude supplier that we have who supplies us.

National Energy Authority managing director Ronald Meketa

The current fuel hike in fuel prices is a result of an imbalance in the supply and demand of oil on the global market.
PNG is an oil producing nation but its pricing mechanisms are tied to global market prices such as the Singapore market and others.
So even though we produce and sell oil, we can’t sell and buy at a PNG price so we don’t have that regulation to set our own pricing.
That’s the challenge and we need to encourage investors to come in and invest, go into the exploration business, drill for oil and refining in country with different concessional or marketing mechanisms.
Currently what we have, we produce in Kutubu and sell to Puma to be refined at the Napa Napa refinery but Puma is buying at the Singapore price.
So the only temporary solution for us is for the Government to subsidise the crude oil price, 50 per cent or 90 per cent of the crude.
Currently we are importing crude as well as some other refined products petrol and others.
We need to start introducing more developers who are interested to do exploration, discovering new oil reserves and building refineries specifically for the PNG market. But after all, everything is sanctioned to the global energy market so that’s where we are.

PNG Manufacturers Council chief executive officer Chey Scovell

We are wondering why our prices have gone up when global oil prices have come down a little.
An important point is that we have our own oil and refinery.
Many businesses are starting to question the benefit of having a domestic refinery.
Puma Energy PNG Ltd had said that they are having problems with getting foreign currency to buy oil.
It’s our Oil Search (now Santos) who should be selling the oil to Puma in kina so that they don’t have to worry about foreign exchange currency.
It can be an equivalent but they should be transacting in kina.
It’s come out of the ground here and they should sell it in kina and not in dollars.

Micro, Small and Medium Enterprises Council president Desmond Yaninen

THE increase in fuel costs will be devastating for all Micro, Small and Medium Enterprises (MSMEs).
Petrol users like taxi drivers will suffer the most unless they are able to increase their fares.
The cost of diesel, though cheaper than petrol, will still affect PMVs and other transportation companies.
Due to unreliable power from PNG Power, many companies who buy their own diesel to generate their own power will see an increase in costs.
Sadly all these high costs that MSMEs now has to wear will be passed on to consumers.
Since the war in Ukraine has driven up the cost of fuel, other countries are adopting measures to make fuel affordable.
In Australia the federal government made fuel affordable by temporarily cutting the taxes on fuel to ensure the cost of fuel isn’t too high for its citizens.
This is something the PNG Government can also look at and temporarily cut taxes or provide subsidies to make fuel affordable.
The last time the government intervened was during the Coronavirus (Covid-19) outbreak to provide support to businesses and it should do so again.