MARSHALLS WITHOUT FUEL PRICE CONTROLS

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By Giff Johnson

MAJURO, Marshall Islands (Marianas Variety, May 23) — Marshall Islands officials learned last week that just about every island in the region has agreements in place with fuel companies to review prices on a regular basis.

"The biggest difference between the Marshall Islands and most of the rest of the Pacific is that in most countries, there is a mechanism in place (to determine) how prices are to be built up," Jared Morris, a fuel expert with the Fiji-based Forum Secretariat, told a petroleum workshop being held in Majuro last week.

In neighboring Federated States of Micronesia, for example, the FSM government and Mobil Oil Micronesia have an agreement in place that includes a framework for pricing, he said.

The Marshall Islands has no such arrangement with its sole supplier, Mobil Oil Micronesia.

The Majuro workshop is being held because of concern over what government officials contend are exceptionally high wholesale prices for fuel charged by Mobil. Mobil officials say their prices are dictated by world market trends and that the high local taxes increase the costs of fuel to local dealers.

"Without that mechanism in place to question fuel prices, you’ll have the same situation no matter who supplies fuel," said Morris, who worked for Shell in Fiji prior to taking his post as a fuel advisor with the Forum Secretariat, the regional body that works for all the independent Pacific governments. The goal of government involvement is not to prevent fuel companies from making a profit, but to insure that a fair price is charged, he said.

Prior to the huge world market price surge late last year, Marshall Islands government officials had criticized Mobil for what they said were unreasonable markups on wholesale fuel prices to gas station dealers in Majuro, the capital of the nation. The government asked for assistance from fuel advisors at the Forum Secretariat to address the issue, and the workshop is one of the results.

The workshop was designed to increase awareness of Marshall Islands government officials on fuel pricing and supply issues, and how governments in the other Forum island nations are handling fuel contracts with large oil companies. Morris pointed out that while as a group, the 14 independent Pacific island nations offer an attractive market for fuel companies, "each on their own are small fry."

In response to questions from participating government officials about what leverage the Marshall Islands has in dealing with Mobil, Morris said that despite relatively small volumes in the islands, no fuel company wants to be replaced by a competitor which can make it easier for the competitor to pick up additional contracts in the region.

Morris said that for the Marshall Islands government to seek an agreement with Mobil for fuel sales and pricing is not asking Mobil to do something it’s not already doing in other countries.

Islands in the region have chosen many different options in attempts to improve supply and lower prices, Morris said, adding that Mobil, Shell and British Petroleum are the three major companies involved in supplying fuel in the Pacific area.

According to Morris: American Samoa’s government owns its own fuel storage facility, and bids it out for use by two oil companies to provide a measure of competition; Samoa also owns its tanks and bids out a contract to a single supplier for a five year period that has produced the lowest fuel prices in the region; Fiji has three suppliers, but the government uses price control to maintain prices; and the Marshall Islands has a single supplier that also owns its own tank farm.

"There’s no single ‘right’ answer," Morris said in dealing with what are largely monopoly fuel supply situations because of the very small fuel markets, by world standards, in most islands. "Each island has to decide the most cost-effective means for achieving a fair price."

The workshop reviewed the costs of delivering fuel from Singapore to Majuro, compared prices in each island nation, conducted practice negotiation sessions, and had the participants develop a fuel pricing framework for the Marshall Islands.

May 23, 2005

Marianas Variety: www.mvariety.com

 

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