Dáil Éireann debate -
Tuesday, 7 May 1991

Vol. 407 No. 9

Adjournment Debate. - Oil Prices Deregulation.

Miss Flaherty

With due respect to the Minister of State, Deputy Leyden, I regret that the Minister is not present on what would have been our first opportunity to question him on this important matter since the decision was announced so speedily earlier in the week. It makes a rather unusual change that we cannot blame a Minister for letting dust settle on a report. It was extraordinary in that we had hardly taken in the report on the morning news before we were told on the lunchtime news that the Minister was adopting a great deal of it. Normally we would be happy to commend him on that. Fine Gael strongly support deregulation of oil prices as a principle but there are important questions to be asked about this proposal.

My primary concern is the consumer, the PAYE worker who has been paying more than his or her European counterparts and certainly a great deal more than British counterparts for petrol products. I am concerned that the proposals the Minister intends to put in place will not greatly affect this position. I was anxious to ask the Minister what happened to the enthusiastic zeal he displayed before he took office when he assured the country he would take on the oil companies, reduce petrol prices substantially and end the huge differential which existed then as now between the price paid by the Irish consumer for petroleum products and that paid by our neighbours on the Continent and in Britain. The latter point is of particular relevance because of Cross-Border trade, smuggling etc. between here and Northern Ireland. The reality is that two or three years later the situation is as bad and the Minister has obviously decided that he cannot control the oil companies. He now intends to see if they can control themselves.

What has changed in the Minister's understanding of the activities, operations or likely approach of the oil companies from what led us to bring in the regulations in the first place? Was the Minister wrong then or is he wrong now? The Minister has said we can look forward to higher prices in the short term. He hopes there may be reduced prices in the longer term. Maybe he will be wrong again, as he was wrong in his expectation that he could deal with this issue substantially. There are fundamental problems in this industry which neither this approach nor the previous approach adequately sorted out. There has been no explanation given to date for the difference in prices across the Border and here. Distance and transport costs are roughly comparable and we should be able to achieve some clarity.

The Minister might also indicate his intentions in the context of the Whitegate obligation. The report of the commission was very confused and divided in its approach to Whitegate and reflected a difference of views between members. It would be of interest to know what the Minister is proposing. It is important that he should be able to tell this House how these changes will improve a very bad situation for the consumer. What of the effects on rural villages, often in tourist areas, which have petrol pumps or small petrol stations? These seem to be most vulnerable to closure as a result of these changes and harsher marketing conditions. The Minister has indicated that there will be some closures. How many does he anticipate? Where will they be and what will the consequences be?

Minister of State at the Department of Industry and Commerce (Mr. Leyden)

Various forms of price controls have applied to petroleum products over much of the last 18 years. Between 1973 and 1984, two different systems of price control operated. The "Outer Zone link" introduced in 1973, linked the prices charged by the oil companies in this country to those areas of the UK known as the "Outer Zone". These were generally areas which were some distance from the larger centres of population and from the immediate vicinity of a refinery. A system based on "justified allowable costs" came into operation in 1979 following a study undertaken by the National Prices Commission.

In March 1983 the Minister requested the NPC to examine price control arrangements in existence at that time, and in June 1984 a new system of price control was introduced. The system was based on a price formula which was calculated on a monthly basis and which took account of the movement in relevant cost factors during the previous month. Under this price regime maximum prices were related to the international cost of oil and not the costs incurred by individual companies. This system, with some alterations, operated until 1986 when a shift in Government policy ended price control on oil products and almost all other products. The NPC was disbanded at that time. I hope Deputy Flaherty notes the date of the change in policy.

On 20 July 1987 price control on the wholesale price for petrol and autodiesel was reintroduced, when the Minister imposed price reductions. Essentially, the new system was based directly on the old price formula system but oil companies were no longer allowed to recover the cost of freight on imports and the wholesale margin was reduced. In mid-April 1989 the Minister reimposed price control on retail prices as well as wholesale prices by means of a maximum prices order. In addition promotions and gift schemes were seen as being a factor in adding to this disparity. The order reduced the distribution and retailer margins.

In October 1988 the Fair Trade Commission was asked by the Minister to inquire into conditions obtaining in regard to the supply and distribution of petrol and autodiesel. In March 1989 revised terms of reference were given to the commission and they were asked to make recommendations on the basis of their findings as a matter of urgency. Central to this was the review of the 1981 Restrictive Practices Order. This order prohibits differentiation in terms and condition of supply, requires retailers to accept certain minimum amounts, limits the number of stations a company can own and sets out other restrictions and rules for the industry.

The Commission indicated that it would not be possible to present a full report to the Minister within the timescale envisaged. Pending the completion of the final report, however, the commission issued an interim report which dealt specifically with the price control formula.

The Commission made a number of recommendations which they considered gave a reasonable basis for the continuation of price control in the short term.

The Minister accepted certain of the commission's recommendations and these resulted in minimal changes in retail prices. Decisions on a number of other recommendations, including the level of retail and wholesale margins, were deferred pending receipt of the final report.

The Fair Trade Commission in their report of their public inquiry into the supply and distribution of motor fuels, published on Monday this week, concluded that conditions in the trade at the time of the inquiry did not warrant the imposition of price control under section 13(1) of the Prices Act, 1958. In addition, the International Energy Agency, in a recent report, stated that price control produced costly trade distortions and inefficiencies and recommended its abolition. In accordance with the recommendation of the commission, the Minister for Industry and Commerce intends to lift price control on petrol and autodiesel. This will take place when there is security against anti-competitive practices which the passing of the Competition Bill will provide. As the Minister said at a recent press conference he does not expect these changes to take place until the autumn. Thereafter, the Minister intends to keep the option of reintroducing price control under review in order to ensure that the benefits which the commission believe should accrue to the consumer from price deregulation are realised.

The Minister for Industry and Commerce is of the view that the recommendations made by the commission will lead to a restructuring of the industry which in time should result in lower prices than would obtain under price control. This view is advanced by the commission and supported by some of the major wholesalers. Price control restricts competition and inhibits the development of competitive markets. However, because of the existence of tight margins in the industry and because oil importers are not being fully compensated for freight and port charges, it is fair to assume that the removal of price control will lead to increased prices initially.

These benefits are outlined in paragraphs 2.37 and 2.38 of the report where the commission expressed the following view of what they expected would happen if their recommendations were accepted:

It is believed that the effectiveness of the recommendations of this report should ultimately be judged by comparing tax-exclusive prices in Ireland with those in other NWE (north-western Europe) countries. While there may be some initial increases in margins, it would be expected that if the recommendations of this report are implemented margins would start to fall within a short time. It would also be hoped that the level of margins would be lower than those obtaining in December 1990 and that the differential compared with other NWE countries would be reduced.

The lowering of prices to consumers will be brought about, it is believed, by increased competition. This competition will lead to a restructuring of the system of distribution. It is likely that the reduction in the number of retailers will continue and may be intensified.

The decision by the Minister for Industry and Commerce to remove price control on motor spirits does not include the removal of the oil companies' obligation to buy from Whitegate. This is a separate matter for which the Minister for Energy has primary responsibility.

I should like to inform Deputy Flaherty that the Minister for Industry and Commerce, Deputy O'Malley, is on an official visit to a north eastern Europe area and he too was prepared for the occasion.