The Tribune

• Loss-making dealers say their survival at stake

• Price-controlled sector in ‘horrendous’ condition

• Jobs already cut as no Gov’t reply to request

By NEIL HARTNELL

and YOURI KEMP

Tribune Business Reporters

Stressed dealers are pleading with the government for a 68 percent increase in the price of cooking gas to secure the industry’s survival in an “horrendous” climate where some are losing up to $500,000 per year.

Liquefied petroleum gas (LPG) or propane retailers said the sector is in “dire” straits due to inflationary pressures that have increased wholesale prices by 51.8 percent. And the impact, the dealers explained, has been worsened by price controls that have held retail prices flat for at least the last decade.

With this squeeze eroding, if not completely eliminating, any profit margin previously enjoyed by the industry, some dealers revealed they have already terminated staff and face extinction unless the Government “urgently” grants a price increase. However, they said their plight has thus far fallen on deaf ears with an October 2021 request for such a rise receiving no response from the Price Control Commission.

Barry Pratt, Island Gas general manager, confirmed to Tribune Business that the now-defunct Propane Gas Retailers Association had submitted such a proposal but no reply was ever received from the Government agency. The Association’s last president, he affirmed that wholesale LPG prices have risen by “51.8 percent, and it’s tough to manage that. Cash flow is an issue. I don’t know how many of the folks can survive.

“Our maximum selling price is $3.54 per gallon, but we have requested it to be raised to $5.96 per gallon,” Mr Pratt added, citing the LPG industry as an example of why price controls do not work. “Either the prices are too low or they are too high, and you never have an equilibrium,” he added. “Only with market forces or competition can you get the correct price.

“We are being really patient with it, and we don’t want to have to resort to draconian measures. Hopefully they would respond favourably to the requested price increase,” Mr Pratt said of the Government. It is unclear if the prices he cited include VAT.

Mark Newell, of Nassau Gas and Tanks, described the last two to three years as “horrendous” and revealed he had been forced to borrow money to ensure the company survived. “It’s been an horrendous two to three years for me. I’ve had to borrow money to keep going basically,” he said in reply to e-mailed Tribune Business questions.

“We have had the same selling price in place for the last ten years I believe. In fact, earlier this year, when VAT went down from 12 percent to 10 percent, the Price Control Commission sent inspectors to make sure we had prices set at $92 for a 100-pound [tank] refill or $3.90 per gallon equivalent. They couldn’t stomach us making eight cents a gallon more at the old $3.98 selling price. So basically $3.90 a gallon is the price ceiling we can’t charge more than.”

Confirming that these prices include VAT, Mr Newell said that - while the price increase sought by dealers may seem excessive - in reality it will have minimal to modest impact on Bahamian families. This is because, unlike vehicle gasoline or diesel, LPG for use as cooking gas is not purchased on a daily or weekly frequency. “It’s only every 3 months really that people need propane. So an extra $20 every 3 months surely isn’t going to break the bank,” he added.

Pointing to the soaring costs that all dealers are having to grapple with, Mr Newell said: “All our trucks run off diesel and that price has doubled. The freight to bring in gas and tanks has gone up because of the increase in bunkers. Of course, the actual price of LPG is also high because of what’s happening in Ukraine etc. It’s a nightmare. We have voiced our plight to the Government’s Price Commission but it has come to nothing.

“I love losing half a million dollars a year, I really do,” he added jokingly. “So, yes, we need a price ceiling increase urgently. But we never get looked at for some reason. The gas stations change their prices weekly. We haven’t in ten years. It’s bizarre.

“We have to deliver the product to customers such as yourself, which takes trucks that cost a couple hundred thousand, run by expensive diesel, have two drivers and expensive insurance.... That’s the situation. It’s dire. And not to mention the supply chain issues of getting gas tanks to supply and sell. They aren’t available until next year. So stealing is rife on the island and we can’t replace tanks.”

Another LPG dealer, speaking on condition of anonymity, echoed Mr Newell’s concerns by saying: “We can’t deal with this any more. We are suffering here. We will soon have to cut staff because we cannot pay for the overhead and the cost it takes to get propane into our tanks without an increase.”

Michael Moss, Moss Gas Company’s general manager, added: “I have sent in letters to them, and they told me that the Cabinet was looking into it and they were meeting and that they will get back to me, but they never get back. When I return a call they never come to the phone; it’s always this runaround.

“We need that price increase, because it is very bad. We are losing money. We aren’t making any money. We are actually operating at a loss now. We were breaking even before October and now we are at a loss. That’s why we notified the Government of that.”

Moss Gas has terminated three staff over the past 12 months in a bid to reduce expenses and losses. “All of that is in my report. They have to do more or we might have to close after 45 years in business,” Mr Moss said of the Government.

He said the Government is “making it worse” by taking $1.60 per gallon in taxes on propane (LPG). “That $1.60 is what they tack on to the wholesalers and we buy from the wholesalers,” Mr Moss explained. “The wholesalers charge me $2.30 for a gallon, plus 22 cents fuel surcharge they add in because they are not supposed to increase, or they can’t increase, the cost of the gas. That’s one wholesaler that does this and they add VAT on to that as well.

“The Government is supposed to get all of that, but you can say that there is 20 cents additional that goes straight into the company’s pocket to cover for their loss. We can’t increase the price but they can increase it on us. This is what’s going on and it has been going on.”

In common with gas station retailers, the plight of LPG dealers highlights the growing strain facing industries subject to price controls in an environment where inflation is surging to three and four-decade highs globally. With production and raw material costs soaring, often-thin margins are being crushed to the point of non-existence as companies are prevented by these controls from increasing prices - and being nimble and flexible - in response.

Price controls were imposed by the Government decades ago to prevent what it viewed as an unscrupulous merchant class from exploiting lower income Bahamians by unreasonably hiking the price of food staples and other essential products, thus placing them out of reach while undermining living standards.

However, opponents argue they are an anachronism that have no place in a modern 21st century economy. The private sector views price controls as an inefficient, distortionary mechanism that creates more unintended consequences than the supposed problems they solve. They can result in product shortages, while retailers and wholesalers have to increase prices and margins on non-price controlled items to compensate for selling these goods as effective “loss leaders”.