The Tribune

• Want margin rise equal to 7% of landed fuel cost

• Feel ‘public will be OK to absorb a few cents more’

• Business Licences double; dipping into pensions

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian petroleum retailers yesterday revealed they are seeking a “pennies on the gallon” margin increase equal to 7 percent of the landed cost of fuel to achieve their version of a “ liveable wage”.

Raymond Jones, the Bahamas Petroleum Retailers Association’s (BPRA) president, last night told Tribune Business that such an adjustment was critical “to allow us to survive as retailers” given that existing price-controlled fixed margins simply cannot cover a multitude of ever-increasing costs.

Believing that “the Bahamian public will be OK to absorb a few cents more” on the per gallon cost of gasoline, he provided several insights into the increasing hardship faced by many gas station operators due to an inflexible business model that has left many unable to break even let alone enjoy a profit.

Mr Jones said turnover-based Business Licence fees have almost doubled year-over-year due to last year’s spike in global oil prices following Russia’s invasion of Ukraine, which saw gas prices peak at around $7.20 per gallon during the 2022 first half. Noting that his fee has increased to almost $25,000, he estimated that “99 percent” of the Association’s members will be unable to make payment by this Friday’s March 31 deadline and will be seeking to agree payment plans.

Speaking after the Association’s executive committee met yesterday to discuss their next move, after receiving no firm proposal or request for a further meeting with the Government following their first encounter two weeks ago, Mr Jones said he had informed the Prime Minister then of how one gas station operator was using his pension money to cover operating costs and maintain staffing levels due to insufficient margins.

Vasco Bastian, the Bahamas Petroleum Retailers Association’s vice-president, told Tribune Business that gas station operators had yesterday agreed to give the Government a little more time to respond with either a formal proposal on how the industry’s concerns can be resolved or scheduling another meeting. However, failing that, he said members will vote “on whether we should continue to operate” with the present margins.

Clint Watson, the Prime Minister’s press secretary, yesterday said he would “revert” to this newspaper after inquiries were made as to the Government’s formal position on the petroleum retailers’ concerns and whether this had been communicated to the industry. However, no response was received before press time last night.

Mr Jones, meanwhile, said of the meeting: “We just discussed ways and means to reduce our operating costs. We’re hopeful that the Prime Minister and the Government would understand the plight we face with fixed margins and fixed costs and come to a mutual position that allows us to survive as retailers. We’re investors in this country.”

The last margin increase enjoyed by gas station operators occurred in 2011, some 12 years ago, under the last Ingraham administration, and operating costs and inflationary pressures have increased substantially then. That took gasoline margins from 44 cents per gallon to 54 cents, where it has remained ever since, while diesel stands at 34 cents per gallon.

Mr Jones contrasted the industry’s inflexible, price-controlled fixed margins with the food distribution sector. While much of the latter’s produce is price controlled, retailers and wholesalers have percentage-based - rather than fixed - margins and mark-ups that allow them to apply for cost increases as the landed costs change.

Noting that the price of half-gallon almond milk had suddenly increased from $6 to almost $11, Mr Jones added: “The Government is not complaining about that because other retailers are allowed to adjust their price to compensate for increasing costs. In our case we’re stuck at a 54 cents fixed margin with rising costs and no ability to adjust to economic conditions. Every other business has the ability to adjust their selling price to accommodate that cost.”

Pointing to the phased increase in Bahamas Power & Light’s (BPL) fuel charge, which the Government permitted to take effect last October to allow the energy monopoly to recover increased costs, the Association president said gas retailers were only asking that they be afforded the same treatment and be granted the profit margins they “need and deserve”.

“We understand the Government’s plight, saying they do not want to push that cost to the public, but cost is cost,” Mr Jones said, adding that operators need to gain “a margin reflective of profits that allow us to survive in this industry”. The Government, though, has consistently ruled out any margin increase on the basis that it does not want to impose a further cost increase on consumers and businesses still struggling with the wider cost of living crisis.

This was reinforced in the Government’s most recent statement, issued after it met with the petroleum retailers two weeks’ ago, in which it said: “While the government is sensitive to the plight of petroleum retailers, who have primarily asked for an increase on the currently fixed margin of 54 cents per gallon, it is also a priority of the Davis administration to act in a manner that does not impose a further financial burden on consumers.

“In light of this, the Government has agreed to explore other avenues to bring some relief to the retailers.” These other avenues were not detailed, and the statement effectively means the Government and retailers are at an impasse given that the fixed, inflexible margins are at the root of the latter’s calls for change.

Mr Jones, recalling an encounter with a lady who paid for $11 worth of gasoline with a $50 bill, and said she needed the change to help feed her children, added: “In order to serve the public we need to make a profit to pay our bills as well. We’re simply asking the Government for a 7 percent increase on the landed (imported) cost of fuel. It’s pennies on the landed cost.

“We’re simply saying treat us the same way. Allow us to make adjustments as the Government. Give us an adjustment that’s reflective of the true operating costs. We cannot make money on the current margins. We need the ability to earn a profit.

“The current 34 cents diesel margin, it’s not worth buying it at that margin we have on it, but we have to be a full service provider to the public. We have to have it, but the amount we invest for the margin, the cost to pay for it, the cost of overdraft fees, the cost of buying that fuel and having it in the tank to sell it is not very economical but it’s a necessary thing to do because it’s part of the product we offer to the public.”

Listing the ever-rising costs that fixed gasoline and diesel margins must absorb, Mr Jones pointed to the 2-3 percent “commission” or fees charged on every debit and credit card payment. On a $6 gallon of gasoline, the 3 percent charge amounts to 18 cents or one-third of the 54 cent margin, although this might be slightly less depending on the issuing bank.

With The Bahamas still largely a cash-based economy, he added that some gas station operators are being charged between $4,000 to $10,000 a month to deposit cash. With banks unwilling to accept such deposits over the counter, the industry is now incurring fees for doing this via the night deposit box.

And, with many of the petroleum industry’s 1,000-plus employees earning the minimum wage, Mr Jones said their has increased by 24 percent or $50 per week due to the increase. While not opposed to the rise, he added that this has increased payroll costs for gas stations while also raising associated National Insurance Board (NIB) contributions.

And, to maintain the “spread” between minimum wage employees and others, gas stations have been forced to raise pay for cashiers as an example. Security costs have also increased, as third-party contractors pass the minimum wage’s impact on to gas stations and their other clients.

“It’s a domino effect in all these rising costs,” Mr Jones said. “We only have 54 cents per gallon to play with. All these things take a bite out of the 54 cents. Energy costs are going up, and insurance costs have increased by 15 percent. That’s a hard cost we have to cover. You have insurance, energy costs, credit card fees, bank deposit fees, salaries and wages and operating and maintenance costs. The 54 cents has been the same for the last 12 years.

“All we’re asking the Government to do is change the margin so we can have a liveable wage. We’re asking for nothing less than an adjustment that reflects a reasonable margin that allows us to continue to invest in the business... We have to do something in the interim to reduce costs.

“Come the end of March we have to pay the Business Licence fee, and 99 percent of them said they are not in a position to do that. Some of them are going to write in and ask the Department of Inland Revenue (DIR) for a plan to pay this off. The Business Licence fee has almost doubled because of last year’s oil prices and the fact it’s based on turnover.”

The petroleum industry is a volume-based business, but Mr Jones said increased tourism numbers and economic activity were not translating into greater sales or market share for operators. “All we’re asking for is a reasonable margin to enable us to make a reasonable profit as investors in the Bahamian economy,” he reiterated.

“Nobody wants to reduce staffing levels. We’re a full service business. We need to be able to recover that cost, and make a small profit to allow us to survive in the industry.” Absent a resolution or failure to get the Government “back to the table”, Mr Jones said the obvious cost reduction option for retailers to employ is to reduce working hours for many staff.

“That is not the preferred solution,” he added. “We believe the Bahamian public will be OK to absorb a few cents more on the cost per gallon of fuel. That’s all we’re asking for. We’re not asking for $2 more or $1 more per gallon. There’s no expectation of that. We’re asking for 7 percent more on the cost of landed fuel, which gives us a living wage.

“We’re not aiming to disrupt the economy; that’s not our plan. Next week, Easter, will make one year since we began discussions with the Government on this. We understand the Prime Minister is very busy. There’s no threat. We want to sit down, get an agreement on what we can adjust so we can put this to bed and move on. All we’re saying is give us pennies on the gallon and that will change the look of our business long-term.

“I’ve been in this business since 2014. Some of these guys have been in the business for years, inherited it from their fathers, and are wondering how they will get a return if they can’t break even now from rising costs. Why is it difficult to ask the public to pay 20 cents extra for a gallon of gas when we are selling a drink in a hotel for $15, $20? It’s important we get the industry stabilised. No threats, let’s make a deal, but we cannot make a deal without talking.”