PETROL PUMP PRICES AND POWER SUPPLY

[Mr Speaker in the Chair]

Mrs Lim Hwee Hua asked the Minister for Trade and Industry what measures are in place to ensure that for sectors where there is little or no competition, such as local oil retailing and power supply, consumers' interests will not be compromised by the tardy downward adjustment or non-adjustment of prices.

Dr Teo Ho Pin asked the Minister for Trade and Industry what measures can be taken to address the apparent oligopolistic behaviour of oil companies in Singapore.

Mr Ong Kian Min asked the Minister for Trade and Industry, in view of the fact that crude oil prices in the international markets have fallen sharply in recent months, and that there is supposedly free competition among the oil majors in Singapore, why have local retail pump prices remained at such high levels.

The Minister for Trade and Industry (BG George Yong-Boon Yeo): Mr Speaker, Sir, with your permission, I would like to answer Question Nos. 1, 2 and 3 together.

Mr Speaker: Yes.

BG George Yong-Boon Yeo: MTI's study shows that petrol pump prices have moved in tandem with crude oil prices in the past, but with a time lag. I would like to refer Members to charts (Cols. 1405-1408) 1 and 2 circulated earlier. Historically, the fluctuation of petrol pump prices is also not as sharp as crude oil prices, because crude oil is not the only cost component of running a petrol station. In fact, the proportion of crude oil price in the pump price is about 20%. Looking at the charts, we can expect pump prices to fall further if crude oil prices do not rise again. Chart 1 - Crude Oil Price vs Petrol Premium (Cols 1405 - 1406)

Chart 2 - Crude Oil Price vs Petrol Intermediate (Cols 1407 - 1408)

MTI has found no evidence of price fixing by the oil companies. Because the industry structure is oligopolistic, and the supply chain is long, price movement tends to be sticky and the companies prefer to compete on free gifts and loyalty benefits. Nevertheless, MTI is studying how we can introduce more competition into the petrol retail business. In the UK, 'white pumpers', which are petrol pumping facilities annexed to supermarkets and commercial buildings, have brought more players into the market. They have injected more competition into the UK market.

MTI will work with the Ministry of National Development to study the feasibility of allowing such "white pump" sites, but without compromising on fire safety and environmental requirements.

The power supply sector will be liberalised later this year. There will be additional electricity retailers besides Power Supply. These new retailers can compete for the larger consumers with customised competitive electricity products. Market forces will exert pressure on the retailers to innovate, provide better service and keep prices competitive.

Dr Teo Ho Pin (Sembawang): Sir, may I ask the Minister whether the Ministry of Trade and Industry would consider taking other measures to stimulate competition among the oil companies in Singapore, such as introducing a competition law or supporting CASE's call for oil companies to display their petrol prices at pylon signages?

BG George Yong-Boon Yeo: MTI is studying the practicality of introducing a competition law for Singapore. It can introduce more competition but it can also cause rigidity in certain industry categories. So we are looking at the pluses and minuses of such a competition law for Singapore and weighing the pros and cons. For some of the FTAs that we are negotiating, having a competition law will be a subject for negotiation also.

As to whether we should require petrol pumps to display prices on pylons, I believe this is something which is better for CASE to raise, because we should not require it by regulation that they must display their prices in a particular manner.

Mrs Lim Hwee Hua (Marine Parade): Sir, I would like to ask the Minister whether there could be possible price collusion amongst the generating companies in future which may influence pool prices instead?

BG George Yong-Boon Yeo: Mr Speaker, Sir, I will soon be tabling legislation on the regulatory structure for increased competition in the power market. This will incorporate competition requirements and the power companies are not allowed to collude to fix prices. The regulatory agency will have the responsibility to ensure that price collusion is detected and not allowed.

Assoc. Prof. Low Seow Chay (Chua Chu Kang): Sir, I would like to ask the Minister whether he is aware that a certain petrol company is offering as much as 10% discount on petrol price and, by offering 10% discount, it is still profitable, ie, there is still room for adjustment of petrol price. In other words, it seems to be overpriced.

BG George Yong-Boon Yeo: Mr Speaker, Sir, the fact that some companies offer discounts shows that there is a competitive dynamic at work and we should encourage more such competition by informing consumers that such discounts are available to them.

Mr J. B. Jeyaretnam (Non-Constituency Member): The Minister speaks about introducing more competition. Does his Ministry accept that if the Ministry reduced this 3/4-tank rule that forbids Singaporeans getting cheaper petrol, there would be much more competition and there would be greater incentive for the petrol companies to bring down their prices?

BG George Yong-Boon Yeo: Mr Speaker, Sir, the 3/4-tank rule addresses a completely different problem. Any petrol retailer in Singapore is free to import crude oil or refined oil from any source outside Singapore. There is a 3/4-tank rule because we in Singapore tax petrol at different rates from those in Malaysia. In fact, until recently, there was a subsidy of petrol prices in Malaysia. If we allow motorcars to bring in full tanks from Malaysia, this, in fact, gives consumers a chance to evade the taxes which are imposed in Singapore and this would have a negative effect on our road usage policy.

Mr Jeyaretnam: Is the Minister then saying that this 3/4-tank rule was introduced simply to get in more revenue for the Singapore Government at the expense of Singaporeans?

BG George Yong-Boon Yeo: Mr Speaker, Sir, the 3/4-tank rule was introduced to ensure the effectiveness of a policy designed as part of an overall programme to control the use of cars and roads in Singapore.

Dr S. Vasoo (Tanjong Pagar): Sir, would the Minister be reviewing the PUB charges and other related charges in the light of oil prices coming down?

BG George Yong-Boon Yeo: Mr Speaker, Sir, I will answer the question about PUB charges later on because there are other questions pertaining to this subject.

Mr S. Iswaran (West Coast): Mr Speaker, Sir, may I ask the Minister, based on the charts, it does not seem so much that the petrol pump price lags behind movement in crude oil prices. It is just that it has been static and moves upwards when the prices go up. That appears to be the pattern anyway. So what would be the timeframe for any study that the Ministry undertakes to introduce greater competition in the industry structure at the retail level?

BG George Yong-Boon Yeo: Mr Speaker, Sir, if I may draw Members' attention to the charts, it is not true that it is a straight line going upwards. There are ups and downs.

Mr Iswaran: It is not that it is a straight line going upwards, Mr Speaker, Sir, but more that it is a relatively less volatile line. If I look at the chart, it is quite evident that it has been quite flat, notwithstanding the movement upwards. And the greatest movement seems to be when price moves up at retail petrol pumps. The key question is: will there be a timeframe for this review to introduce greater competition at the retail level?

BG George Yong-Boon Yeo: Mr Speaker, Sir, our statisticians have looked at the charts and have not found, on the basis of the charts, the conclusion which Mr Iswaran has drawn, that the charts only move up and are sticky downwards. In fact, they reflect a certain evening out of the volatility. We are looking at the possibility of introducing more players into the market by studying whether we can introduce "white pumps" into Singapore without compromising on safety.