DEREGULATION OF PETROL AND DIESEL PUMP PRICES

Dr Lee Siew-Choh asked the Minister for Trade and Industry whether the objective of the Government in deregulating petrol and diesel pump prices, i.e. to promote competition among the six oil companies operating in Singapore to bring benefits to motorists and consumers, has been achieved, and, if so, with what results.

The Minister of State for Trade and Industry (Mr Mah Bow Tan) (for the Minister for Trade and Industry): Mr Speaker, Sir, as the Minister for Trade and Industry informed this House last month, the Government deregulated the petrol and diesel markets last December, in line with its overall policy of allowing market forces to determine prices for goods and services. 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 to prevent profiteering. This is economically efficient and fair to both the companies and the consumers.

There is no reason why the same market mechanism should not work for petrol and diesel. In the longer run, consumers will benefit, especially if they continue to demand better service, higher quality products and competitive pricing. The companies will have to compete more intensely among themselves. They will no longer be protected by the Government, which in fact they were, because under the previous arrangement, with price control, the Government was effectively guaranteeing the oil companies a fixed margin of profit on their business, regardless of their cost level and the quality of their service.

The petrol and diesel markets will take some time to find their level, since they were only deregulated recently. Nevertheless, some encouraging signs have already appeared in the market:

Oil companies have adjusted their prices in line with world prices of petrol and diesel. They have not always raised prices; but recently, when wholesale diesel prices fell, they also lowered the pump prices of diesel.

There is no longer uniformity in pricing: different oil companies have begun to charge slightly different prices for petrol and diesel.

Higher octane gasoline is now being offered at the same price as a lower octane grade of gasoline. This is what the Government expected would happen if deregulation worked.

Dr Lee Siew-Choh: Has the deregulation really promoted competition so that the consumers benefit?

Mr Mah Bow Tan: Mr Speaker, Sir, the objective of the deregulation exercise is to ensure that customers get the best service at the best possible price. We have seen in recent weeks that the deregulation is working out along the lines that the Government has planned in the sense that prices are now being offered by different oil companies at different levels. Also, as I indicated in my reply earlier, diesel prices, in line with the lowering of the wholesale price for diesel, have actually come down. I think the answer to the Member's question is yes.

Dr Lee Siew-Choh: The Minister has not mentioned anything about petrol prices. Have they gone up or down?

Mr Mah Bow Tan: Sir, the deregulation has only recently taken place. I think we should let the market work itself through.

Dr Lee Siew-Choh: If the prices should continue to go up, what would the Government do under those circumstances?

Mr Mah Bow Tan: Sir, if the posted prices of petrol go up and the oil companies raise their prices accordingly, I do not think there is anything that the Government can or should do. But if it happens in the reverse, we would expect the prices to also go down accordingly.