PRICING OF PETROL

Mr Chng Hee Kok asked the Minister for Trade and Industry what steps are being taken to ensure that the pricing of petrol will be fair and competitive as a result of deregulation.

The Minister for Trade and Industry (BG Lee Hsien Loong): Mr Speaker, Sir, the petrol and diesel markets were deregulated with effect from 1st December 1989. Deregulation encourages competition among oil companies. It forces them to operate efficiently and to be more responsive to the needs of the consumers. It allows the free market to determine the real price for the products, and is therefore fair and economically rational. The Government does not regulate the prices of food, transportation, or other basic necessities in Singapore. It leaves it to competition to bid down prices and prevent profiteering. There is no reason why the same mechanism should not also work for petrol and diesel.

Having only been recently deregulated, the petrol and diesel market will take some time to find its level. The Ministry of Trade and Industry has been monitoring the situation closely, to ensure that there is no profiteering or formation of cartels to fix prices. To protect the interests of consumers, it has advised the oil companies to give the public sufficient notice of any price changes. The companies have agreed to do so.

Consumer vigilance on the part of motorists is also an effective check on petrol and diesel prices. By their responses and feedback, consumers can help to encourage greater competition and fairer pricing to prevail.

Mr Chng Hee Kok (Tiong Bahru GRC): I have a number of supplementary questions, Sir. First, will the Minister agree that there is really very little choice for the consumers since there are only six suppliers of petrol. Secondly, if the oil companies are prepared to maintain their market shares, there is no reason for them to reduce their prices even though their raw material input may be lower as long as they maintain their market share. What pressures will the Ministry bring to bear? Lastly, what steps will the Government take if the oil companies, despite different cost structures, raise their prices at the same quantum and at the same time as in the past?

BG Lee Hsien Loong: Mr Speaker, Sir, there are about six oil companies, big and small. But if we compare it to some other industries, for example, the newspaper industry, there are fewer than six newspaper companies. If we compare it to the bus services, there are not six major bus companies. So we have to look at how the competition develops between these six companies to decide whether or not six is enough. In the past, when we regulated prices, competition between petrol companies for market share developed on the basis of fringe benefits. You get coupons, you get free gifts, you get lucky draws, you get little smurfettes and smurfs. Is it better for us to force people to compete on the basis of the most interesting smurf, or should we not allow them to compete on the basis of prices? I think the competition is there. The question is: how strong will the pressure be?

One important factor here which I believe the oil companies realise, and probably Members too, is that while they can set prices, the Government has a very strong influence. It controls the excise duty. The pump price is the price which they set plus the excise duty. If the companies get together and push their prices too high, it is always within the power of the Government to use the excise duty as an instrument, to make sure that the companies do not gain unfair profits. The companies knowing that, I think, have a strong incentive not to try their luck and to collude.

Dr Wang Kai Yuen: Sir, in order to allow the consumers to make a better choice, would the Minister consider making it a regulation for petrol stations to post their pump price publicly, as they have done in other countries, for instance, in the US?

BG Lee Hsien Loong: Mr Speaker, Sir, we will consider the matter but, at present, I do not think there is a strong pressure to do that because motorists are well-informed, and all it takes is a half-cent difference in the petrol price for them to transfer from one oil company to another. But if there is a need, we will consider it.