JOINT COMMITTEE ON COMMUNICATIONS, ENERGY AND NATURAL RESOURCES debate -
Wednesday, 8 Oct 2008

Petrol Prices: Discussion with Industry Representatives.

Chairman

I welcome the representatives from the companies that accepted our invitation. Topaz Energy Limited is represented by Mr. Danny Murray, chief executive officer, Dr. Frank Bergin, chief operations officer, and Mr. Eddie O'Brien, chief financial officer. Maxol is represented by Mr. Tom J. Noonan, chief executive officer, Mr. Brian Donaldson, general manager, and Mr. Des Duffy, retail manager. Texaco is represented by Mr. James Twohig, manager, fuelcard consumer sales, UK and Ireland, and Mr. Paul Herbert, sales manager, retail, Ireland.

Before we begin, I draw everyone's attention to the fact that members of the committee have absolute privilege but that the same privilege does not apply to witnesses appearing before it. The committee cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the Houses or an official, by name or in such a way as to make him or her identifiable.

The representatives have been invited before the committee as the members want a better understanding as to how they arrive at their pricing policies and, more important, the timescale involved in reflecting fluctuations in the international oil market in petrol pump prices. I invite Mr. Murray to make his presentation.

Mr. Tom Noonan

I believed four companies had been invited although there are representatives of only three present. The Chairman will know I have concerns about one or two companies being singled out by the committee. They already have been the subject of adverse publicity.

Chairman

No company has been singled out by this committee or has been subjected to adverse publicity thereby. Individual Members of the Oireachtas are entitled to make statements.

Mr. Tom Noonan

I did not say the committee had singled us out but that we had concerns that we had been singled out. I was happy to attend on the basis that four companies were being invited to participate. I am concerned that the committee has not succeeded in arranging this.

Chairman

I repeat that this committee has not singled out Mr. Noonan's company or any other. Individual Members of the Oireachtas are entitled to make statements and that is their right as elected representatives. We invited four companies and three took it upon themselves to be represented. They are very welcome. It is clearly Mr. Noonan's decision as to whether he wants to participate.

Mr. Tom Noonan

I would have been very happy to participate had it not been for the adverse publicity to which my company and Topaz Energy were subjected through no fault of their own, and perhaps through no fault of the committee – I accept the Chairman's credentials in this regard. One member of the committee was mentioned in the article to which I allude. I am not sure if he is present. I am not sure how the story got into the media but it is certainly most unhelpful and very unfair.

Chairman

The committee has invited Mr. Noonan and he has accepted our invitation. It is his decision as to whether he wants to address the committee. I wish to allow the deputations who want to participate to make their presentations. Without further ado, I ask Mr. Murray of Topaz to do so.

Mr. Danny Murray

On behalf of Topaz Energy, I welcome the opportunity to meet the members of the committee to outline its views on the issue of petrol and diesel pricing. I am accompanied by Mr. Eddie O'Brien, our chief financial officer, and Dr. Frank Bergin, the chief operations officer.

I will outline the background to our company and explain where we fit in the industry. Topaz Energy Limited was established just over three years ago specifically to create an Irish-owned and Irish-managed retail and commercial fuels business. To date, it has invested more than €350 million in the business. In the autumn of 2005, the new company purchased the Irish business of Shell, one of the leading brands in the fuel and energy business internationally. Twelve months later, the new company added to this by successfully acquiring the Irish business of Statoil. These two transactions meant that, just 18 months after its establishment, Topaz was the largest retail and commercial fuels business in the country. This is the first time in the history of the State that these assets were Irish-owned and Irish-controlled. Topaz Energy employs more than 1,500 people directly and an estimated 2,500 indirectly, which is far in excess of the number employed by any other oil distributor in Ireland.

Let me give some sense of the scale of our business. Topaz is a critical part of the national energy supply infrastructure. It owns and operates seven sea-fed terminals and 104 service stations and supplies fuels to 250 more bearing the Topaz brand right across the island, including in small villages, big towns and cities. Topaz supplies more than 200,000 home-heating customers and 50% of all aviation fuel. It is the largest supplier of commercial fuels and approximately 50% of all oil imports come through our terminal infrastructure. Topaz also provides distribution facilities from our terminals to most other oil companies, thus enabling them to operate. In the months since the second acquisition was completed, our focus has been on merging the two businesses and, in recent months, rolling out our new brand Topaz to replace the Shell and Statoil brands, respectively. We are investing €50 million in rolling out our new brand over the coming months and years. We will show that Topaz prices at the pump rise and fall at the same rate. We will show that key factors affecting pump prices are Government taxes, international refined product prices, dollar-to-euro exchange rates and local inventories. Fuel retailing is high volume, low margin business.

There are a number of key characteristics about Topaz which are relevant to this committee. Media focus is on the shifting price of crude oil, but Topaz buys refined oil products, not crude oil, and the cost of product only accounts for 37.25% of the price of a litre based on a notional pump price of €1.20 per litre. Topaz purchases all its requirements for refined products from European refineries, including Whitegate. We buy on the average price for the month of delivery converted to euro at the average exchange rate, and we endeavour to recover that average price from the market, including price movements between opening and closing inventory. The effect on the market of this is that our prices at the pump tend to increase two to three weeks after the international price has risen and tend to decrease between two to three weeks after the international price has decreased.

Topaz only sets the pump prices at the stations we own. Under competition law, we have no right to set prices at stations owned and operated by our dealers. I will focus my comments on the price of petrol at the pumps from March to September 2008 but the same comments generally hold true for diesel.

If one focuses on Government taxes, total taxes, duties and levies on a notional pump price of €1.20 account for 55.08% or 66.1 cent per litre. This is made up of duty on petrol of 44.47 cent per litre, the NORA levy of 1 cent on each litre and VAT of 21% of the final price. It does not matter if prices are rising or falling; the duty and NORA element are fixed. If the VAT element is added, one can see if prices rise, taxes eat up an additional 21% of the new pump price.

The refinery price is the element of the overall pump price which is relevant when trying to understand pump price movement versus movements in crude oil. The refined product must be shipped to Ireland. The product is unloaded and stored at one of our sea-fed terminals. From the terminal the petrol is delivered to the forecourt. Filling station costs and margins make up 3.33% of the total, followed by financing costs covering inventory, debtors, provision of facilities and credit card charges, which can be more than 1% of the overall total. The profit made over a year is 0.92%. Most of the costs are fixed. Other costs include a significant element of VAT, PAYE and corporation tax.

Let us look at international prices compared with Irish pump prices. The average cost of Brent crude for March to September 2008 is noted. Between June and September 2008, crude prices reduced by 24% based on the month average for both months in US dollars. The 24% reduction in crude prices translated into a 22% reduction in ex-refinery prices on the same basis. The strengthening of the US dollar against the euro resulted in a 14% reduction in the euro value of the refined products which we purchased. When the 14% reduction in refinery prices is applied to Irish pump prices it equates to a reduction of just 5.6% because Government taxes make up such a large fixed portion of the overall price. A 24% reduction in crude oil prices equates to a 5.6% reduction at the pump because of Government taxes and changes in the exchange rates.

The next issue is the spilt of revenue at different sample pump prices. As prices increase, the Government receives additional moneys even though the overall percentage decreases. The refinery price increases in cents per litre and percentage and the other costs remain the same but reduce as a percentage. From March to September 2008, the average price for petrol at Topaz stations averaged out at the figures I have mentioned, proving that our prices increase and decrease at the same rate.

Topaz prices at the pumps rise and fall at the same rate. The key factors on price include Government taxes, international refined product prices, US dollar to euro exchange rates and local inventories. Fuel retailing is a high volume, low margin business. I thank the committee for their time and attention.

Chairman

I thank Mr. Murray. Does Mr. Noonan wish to contribute to the debate?

Mr. Tom Noonan

Yes, I do. We will try to be helpful rather than unhelpful, which is why we have come today. The Maxol group welcomes the opportunity to clarify the oft perceived, but misunderstood, relationship between its wholesale prices and the price of crude oil. Our business is entirely owned by the McMullen family, having been founded by William McMullen and his brother approximately 80 years ago. Today we supply 233 Maxol branded service stations throughout the island of Ireland. We also supply home heat distributors, commercial and agricultural consumers, and we are significant providers of lubricating oil. In 2005 we became the first oil company to make bio-fuel available on Irish forecourts and we continue to be the leader in that market segment.

Much of what I wish to say does not differ from what has been said by Mr. Murray. There is one difference. We wish to emphasise that we do not manage any service stations directly. They are all run by independent business people, some of whom are operating stations under licence which are owned by Maxol. As a result, we are precluded under Irish competition law from setting pump prices.

Ultimately, oil prices are set by supply and demand considerations in a fast and competitive market. The key point to understand is that for those of us bringing a product into Ireland, it is the forces of supply and demand on what comes out of a refinery, and not the day-to-day price of raw materials going into a refinery, that matters. The rises and falls in the price of crude oil are a factor in the price of the end product, but the link is not as direct as is often portrayed.

To demonstrate this point, one can look at how the prices of petrol and diesel have risen at different rates. The price of the raw material has gone up at the same rate, but because demand for diesel and related products has risen so much faster than the demand for petrol, the price of diesel has risen faster. It is the forces of supply and demand on refined product that is the immediate driver of prices. This is set out clearly in a paper on the website of the Irish Petroleum Industry Association, which I have included in the information I have supplied. Over the years, we have explained this to many politicians, journalists and other commentators who may have an interest.

The joint committee in its letter to Maxol of 18 September 2008 stated that: "It was noted that energy prices had reduced from early summer of $147 plus per barrel to under $100 per barrel". As I have already said, Maxol does not purchase crude oil but rather sources refined products from a variety of locations, including Whitegate and refineries on the west coast of the UK. The price we are charged relates to the refinery price and the benchmark for north-west Europe is known as the Platts quote, which is also mentioned in the IPIA paper. The Platts quote, that is, the ex-refinery price, for these products varies with the demand for them and does not always move in line with crude oil prices.

Throughout the world, oil is traded in US dollars, which means that we have to buy this currency to pay for our product requirements. As we know, like oil, the value of US dollars fluctuates. The other significant components in pump prices in Ireland are duty, VAT and the NORA, National Oil Reserves Agency, levy. When the price of petrol is €1.24 per litre and diesel is €1.29 per litre, these components make up 66.8 cent per litre, 54%, and 60.2 cent per litre, 47%, respectively, of the total price. The relevant benchmark crude oil price for north-west Europe is Brent crude. The highest level it closed at in 2008 was $144 per barrel. The figure of $147 may relate to some other crude oil benchmark for North America. The highest price we can find for this year is $144 per barrel on 3 July and it dropped back to $99 on 9 September, although it has fluctuated quite considerably since then and currently sits below that level.

The joint committee asked in its letter of 18 September "why prices were not reducing as quickly as might be expected" and the following is Maxol's response:

Only those who imagine that Maxol imports crude oil and sells it at the pump should expect pump price movements to closely follow the price of crude. I would suggest to the committee that it instead looks at how our price movements match the price of the refined product that we purchase, import and distribute in Ireland.

A whole variety of products are derived from crude oil. There is, of course, a connection between the underlying price of crude and pump prices but, the latter can often move quite independently of crude in the short term when, for example, the demand for petrol and diesel rises in the summer or, conversely, the demand for heating oil rises in the winter. Hurricanes in the Gulf of Mexico, where many of the largest US refineries are located, can often disrupt refinery output and cause short-term price spikes as well. The tighter supply position for diesel in recent times has also seen its price rise by more than the increases in petrol or a barrel of crude.

There is no unwarranted delay between movements in crude prices and the prices we charge our dealers. Maxol is the only oil company in Ireland that publishes its wholesale prices on its web site and, therefore, I am happy to give the members of this committee an insight into how they have moved in recent times. Maxol prices are generally reviewed weekly, on a Wednesday, taking account of the previous week's average movement in Platt's prices and the dollar, as well as any other relevant factors. However, exceptional reviews occasionally occur in addition to this, where there is, for instance, a significant movement up or down in the Platts/dollar price.

From its high of $144 per barrel on 3 July, the Brent Crude price dropped to $99 per barrel on 9 September. However, during this period, the relevant Platts, ex-refinery, prices, taking account of the dollar/euro rate, decreased by only 5.1 cent per litre for petrol and 8.88 cent per litre in the case of diesel. In the same period, Maxol reduced its wholesale prices by 4.92 cent per litre for petrol and 8.71 cent per litre for diesel. This confirms that there is no significant difference between what Maxol buys and sells for. These figures have been established by excluding duty, VAT and the NORA levy.

We have also analysed the pump prices quoted in the AA monthly price survey for the same period on the same basis and note that these have dropped by 4.96 cent per litre in the case of petrol and 8.51 cent per litre in the case of diesel.

The joint committee's letter of 18 September also asked "what the future holds for the consumer in relation to energy prices". The following are the only comments I can make in that regard. If I did have the answer to the question I would be relaxing in a sunnier clime than we have today.

In an interview for RTE News on 22 June this year, I expressed optimism about the price of oil dropping if and when the dollar strengthened. In recent days we have seen a surge in the strength of the dollar against the euro and weaker oil prices. Indeed, it is likely that, despite lower crude prices, OPEC will not see the need to cut oil output because its member's coffers are being boosted by this surge in the dollar value. Unfortunately, this change of fortune for the US currency is down to a global crisis in banking. For as long as this continues, we can expect to see a continuation of this trend of a stronger dollar and weaker crude.

I have long maintained that the price of crude has been unnecessarily boosted by speculators and in addressing this enormous challenge to the global banking system, I believe legislators everywhere should also address the problems caused by aggressive commodity speculation.

What conclusions can be drawn from this analysis? Movements in crude prices are not directly relevant for pump prices. The appropriate comparison is with movements in the prices of refined products, that is Platts. There will always be a lag between movements in crude prices and refined prices but supply and demand considerations may mean that they will not always mirror each other. The dollar-euro exchange rate is a significant factor as well.

The bulk of the price is comprised of excise duty, the NORA levy and VAT, all factors outside of Maxol's control. The Government revenue from these three sources in 2007 was about €3 billion, up 13% on 2006. The price that Maxol charges its service station customers tracks changes in the price it pays for the products. Extremely high oil prices cut demand and, therefore, do not suit Maxol any more than they suit its customers. It is likely that petrol retailing is one of the only businesses in Ireland that has seen its margin per unit drop since the 1990s even though the cost of running a service station has been rising steeply in recent times.

If one is working in the oil marketing business in Ireland, one cannot but be acutely aware of the consumer interest in pump prices. Our retailers are obliged by law to display these on large signs at their stations, a regulation introduced in 1996 by the Government of the day, and this promotes keen price awareness.

The high awareness levels relating to our prices are in stark contrast to the apparent lack of awareness among consumers of supermarket grocery prices. Some supermarkets seem to hide behind artificially low pump prices to lure people into their stores, where they have an unfettered opportunity to manage with impunity the prices for the goods on their shelves, and then go to great lengths to avoid publishing the profits they make from their Irish operations.

I am more than happy to answer any questions the members of the committee may wish to put to me.

Mr. James Twohig

I wish to tender the regret of our chairman and director, Mr. Enda Riney, who is unable to attend due to commitments outside the country which he was unable to postpone.

I am manager of fuelcard consumer sales for Ireland and the UK. My colleague, Paul Herbert, is manager of retail sales for Ireland. We are before the committee today to represent Chevron (Ireland) Limited which markets under the Texaco brand in Ireland. We welcome the opportunity to discuss with the joint committee the pricing of petrol and diesel. I wish to give the joint committee an overview of Texaco in Ireland.

Texaco has been here since the 1920s and we are a well-known marketer of petroleum products throughout Ireland. In 2002, Texaco merged with the Chevron corporation and while our company name has changed to Chevron (Ireland) Limited, we continue to market under the Texaco brand. We wholesale petroleum products to our customers from our network of oil terminals in Dublin, New Ross, Cork, Limerick and Galway. Our product supplies come mainly from our refinery at Pembroke in south Wales.

Chevron supplies petrol and diesel to approximately 300 Texaco-branded service station sites across Ireland. All these service stations are operated by independent business people and not by Chevron. We also supply a number of oil distributors, who re-sell our petroleum products and, again, these are independent businesses.

Chevron is, therefore, a fuel wholesaler and, as such, all prices charged to the end customer are determined by the independent retailer or distributor that we supply. The Irish fuels market is a very competitive one with relatively low margins, which helps to explain why the number of service stations in this country has more than halved over the past ten years from 2,218 sites in 1997 to 1,092 in 2007.

The price of crude oil has attracted significant media attention recently. However, Chevron does not buy or import crude oil into this country. Our market requirement is for petrol and diesel, products which are refined from crude oil. The world price of these products is quoted daily by Platts, with the currency in which these prices are reported being the US dollar. Chevron (Ireland) Limited wholesales petrol and diesel into the Irish market. Prices charged to retailers and distributors for both of these products are changed at least weekly and are based upon the average price of the fuels as published by Platts for the previous week. If any changes are required, the two main elements that determine the size of the change are the price of petrol and diesel as published by Platts and the US dollar to the euro exchange rate. While product prices have been weakening in recent months, the US dollar-euro exchange rate has been strengthening.

The most important aspect to note is that our prices are changed immediately based on the changes in the two elements highlighted. The revised prices are notified to all our customers and any orders delivered after that day are charged at the new rate. Thus, the effects of petrol or diesel price changes are immediate. We do that consistently.

The price of petrol and diesel has risen sharply in the past year, and obviously has raised much concern for the ordinary motorist. Organisations such as the AA, which monitors prices nationally, have sought and received explanations as to how these increases originate, and have put on record their acknowledgement of the excellent degree of co-operation they have received from the oil industry, including ourselves.

It is worth noting that Europe is a net exporter of petrol but a net importer of diesel, and that has a bearing on both price and supply availability depending on the time of year and level of demand. While the media has highlighted the movements in the price of the barrel of crude oil, it is interesting to view that in contrast to the price movements in petrol and diesel over the same period.

Appendix 1 shows that while the Platts price of crude oil dropped approximately $46 a barrel on given dates between July and September, Platts' prices for petrol dropped 11.5 cent per litre and Platts' prices for diesel dropped 15.7 cent per litre over the same timeframe — both much smaller falls than that experienced by crude oil.

It is also worth noting how much of the price at the pump is comprised of duty, VAT and the National Oil Reserves Agency, NORA, levy. For diesel sold at the pump for €1.259 per litre, excise duty is 36.8 cent per litre, VAT is 21.85 cent per litre and the National Oil Reserves Agency levy is one cent per litre, giving a duty, VAT and levy component of 59.65 cent per litre — approximately 47% of the pump price.

For petrol sold at the pump for €1.219 cent per litre, excise duty is 44.27 cent per litre, VAT is 21.16 cent per litre and the National Oil Reserves Agency levy is one cent per litre, giving a duty, VAT and levy component of 66.43 cent per litre — approximately 55% of the pump price.

In terms of future energy prices, that is something Chevron cannot predict. The variables involved are numerous and have been written and talked about through various media channels in recent years.

Even though crude oil price movements have been highlighted nationally, it is the refined products — petrol and diesel — that Chevron (Ireland) Limited markets in this country. While crude oil has decreased by approximately $46 per barrel from dates between July and September, the price decreases of refined products have been in the 12 cent to 16 cent per litre range over the same period. The strengthening US dollar has diluted the impact of reducing product prices.

Chevron (Ireland) Limited is a wholesaler of petrol and diesel to its branded service station network and its wholesale prices reflect, on an immediate basis, the impact of changes to product prices and US dollar-euro exchange rate movements.

With approximately 50% of the pump price comprised of duty, VAT and the NORA levy, this is a constant when reviewing pump prices and is not greatly affected by decreasing or increasing product prices or changing exchange rates. Future energy prices are virtually impossible to predict.

Deputy Simon Coveney

I thank all of our guests for attending this morning and for their presentations. I hope we will have a useful discussion. It is unfortunate that the other company that was asked to attend chose not to do so. That was not as a result of our doing. We asked everybody to attend.

Our job is fairly straightforward. It is to respond to consumers' concerns that they are paying more than they have ever paid for diesel or petrol. They want to know that there is an active, competitive market in Ireland, that there is not a cartel of any sort, that there is not price fixing of any sort and that they can be sure we are doing everything we can, without changing taxation policy, to ensure consumers at the pump, and also in terms of home heating bills, are not paying more than they should.

Our questioning today is purely with that in mind, and nothing else. I sensed some concern from Mr. Noonan that members of this committee were trying to have a go, so to speak, at individual companies. That is not the case. Our job is to look after the consumer interest primarily without treating companies unfairly.

I have a number of questions. First, there is a great deal of confusion among the public as to the difference in price between petrol and diesel. That began more than a year ago. The explanation we got at the time was that it was simply a demand and supply issue; a sufficient supply of diesel could not be got and therefore the price went up. The market has responded to increases in demand for diesel and therefore why do we continue to have the same difference in price? Why has that not levelled out over time, particularly when we consider that the tax and duty Government applies to diesel attempts to favour diesel over petrol for environmental reasons?

Second, there seems to be a difference in approach between Maxol and Texaco versus Topaz. Am I correct in saying that Topaz owns the vast majority of the stations in the country?

Mr. Danny Murray

We own 100 of them.

Deputy Simon Coveney

On the pricing applying to those 100 stations, is the pricing the same at all of them and, if not, why not? Is Topaz's pricing determined by local factors such as providing competition to garages in the towns and regions where its 100 garages are located?

In terms of Maxol, Texaco and the petrol stations that Topaz supplies but that are run by individual operators, is there a discussion between the oil supplier and the retailer as to acceptable profit margins or is it left to the market to decide in terms of competition?

In terms of the pie charts, the figures provided by each of the companies are remarkably similar as to what makes up the cost. That is reassuring from our point of view. I was interested to hear that it takes two to three weeks for international price fluctuations, whether that is refined or crude product, to filter down to the price at the pump. With the price of crude oil at $89 a barrel today, can consumers expect price reductions in fuel prices in the next two or three weeks? A concern that people may not have considered is, while oil prices are reducing, the dollar is strengthening. Will one of those factors cancel out the other in terms of the potential price reductions consumers can expect? The delegates might address those questions and I will raise one or two further specific questions later.

Mr. Danny Murray

Perhaps it would be worthwhile if I distributed a letter we sent to the Minister for Finance in March 2008. It clearly sets out why there is a difference between diesel and petrol prices. It is a technical issue. It clarifies for everybody the reasons for that. There is a difference between diesel and petrol prices, which is related to supply and demand. My understanding is that Europe does not produce enough diesel. We import up to 25 billion litres of diesel per year into Europe, mostly from Russia. It is that supply and demand issue that causes the difference in the refined product price.

Petrol is only used for petrol driven cars; it does not have any other applications. Out of a barrel of oil, we get middle distillates and out of those, we get petrol, heating oil and jet oil for aviation. Those three products come out of the same part of the barrel of oil. Petrol is on its own and the three other products are linked in price. That price has been much more expensive than petrol during the past year and I believe it will continue to be. I expect there will be a significant difference in diesel prices as against petrol prices at a station for the foreseeable future. That is my opinion on that issue. The letter I passed to the Deputy explains that in more detail.

The Deputy asked about pricing in our stations. We own 104 stations located across the country. The Deputy asked if prices were the same at all our stations. They are not because some factors come into play. We have corner shop filling stations and supermarket filing stations; I am sure the Deputy can understand that analogy. We have some stations that transact a very small volume of business and others that transact a very large volume of business. We have to make a profit even on the smaller ones, therefore, one would expect that prices would be more expensive at those stations.

Another factor that comes into play is the distance of the stations from our distribution hubs. The Deputy may recall that the pie chart, to which I referred, indicated transportation costs at an average of 1 cent per litre. If a station is close to our terminal in Dublin, the cost is less and if a station is much further away, the cost of transporting fuel to it can add quite an amount to the cost involved. That is the reason we do not apply the same prices in our outlets across the country. It would not be possible or economic for us to do so.

On the Deputy's point about dealing with our dealers, the people who have our name over the door but who are not owned by us, we have no discussions with them as to acceptable margins or the prices they charge. It is absolutely up to them and they have to compete in a local market.

The point was made earlier that half the stations in the country closed during the past ten years. A belief held is that all these stations closed for property development purposes. Out of the 12,000 stations that closed, I maintain that fewer than 100 closed for property development purposes. The rest went out of business because they could not make an appropriate return on their investment. The reason for that was local competition. This is one of the most competitive industries in the country. We said we are working on razor thin margins and that is a fact. Most of the station closures in recent years was due to local competition.

The Deputy said that the prices on our pie charts are similar. Why would they not be similar, given that the Government taxes are exactly the same for every company? The European refinery price is similar. On a price of, say, $1,000 per tonne for petrol, if I were to go to all the refineries in Europe, I would not get a price that is different by one or two dollars. If that is the case for our company, it must be the same for all the other companies operating in the marketplace. Many of the inputs into the price are similar or the same for the different companies. That is why the pie charts would be the same.

The Deputy asked about it taking two or three weeks for international price fluctuations to result in price reductions at the pump. If we were to graph the prices we charge at the pump and go back over the past ten years and take, say, the AA figures, to which people have alluded, we would see an exact correlation of that happening, perhaps, two or three weeks later all the way through. It is a fact of life. That is the way it happens.

The Deputy asked can we expect fuel prices to come down, given that the price of crude oil is $89 a barrel. Over the past few days the dollar has strengthened significantly and it will be a battle between whether the prices fall enough or the dollar has strengthened enough as to whether there will be a price decrease. I ask everybody to bear in mind the figures I gave earlier. If the price of a barrel of oil falls by 10%, that will not result in a 10% decrease in prices at the pump because Government taxes make up so much of the fixed price, but we can expect some reduction. Fuel prices have reduced across the country in recent weeks. Fuel prices increase and decrease.

Deputy Liz McManus

The delegates are all welcome and I thank them for taking the time to come here. It strikes me that the week before the budget delegates of the company who have not turned up made a mistake as the delegates here have a wonderful platform to argue about the mountains of money their companies are giving the Government in taxes.

Mr. Tom Noonan

They will be looking for more.

Deputy Liz McManus

It is certainly a message that is coming through.

As Deputy Coveney said, we are representing ordinary people who are facing considerable increases in their bills, whether it be petrol, heating oil, gas or whatever. At a time when jobs are insecure, it is a great worry for people to be facing this kind of increase in the price of essentials.

We would all accept Mr. Murray's point about the price of crude oil versus the price of refined oil, but the price of crude oil has now gone down to $89 a barrel, while the value of the dollar increased only very recently. It seems there is a slight disjuncture there in terms of the figures he has given us and the impact the value of the dollar has had because of the timeframe.

The concerns we have about the diesel issue, in particular, are not only about price, even though it has been continually higher than the price of petrol during the past 12 to 18 months despite the tax difference. Normally that does not happen in the summer months; it has been a feature that there has been a reduction in the price of diesel in the past.

We are in a position where we must encourage environmentally friendly practices. Essentially, that means doing as much damage to delegates' businesses as possible in terms of oil and petrol. The diesel issue needs to be addressed. I find it difficult to understand that there could not have been foresight in terms of the demand for diesel. Why is there not supply to meet the demand? Surely it would have been obvious to anybody running a business that such demand would increase because issues of climate change and so on are becoming much more central to our lives. I have a difficulty with that. Why is there not such a supply and why has it not been addressed?

In regard to the information Mr. Murray has given us, which I do not doubt, a graph by Topaz shows considerable information about final costs and crude oil prices. Mr. Murray said the pattern is that a decrease in the prices at the pumps tends to follow drops in oil prices. I am always suspicious of words such as "tend" because they can mean almost anything. If Topaz has a graph on this — Mr. Murray said he has one — it would have been nice for us to have it because we want to be able to be in a position to explain to people what precisely is going on. There is no graph here to show that pattern. Mr. Twohig said the information was given out and it was immediate. I do not doubt that but there are concerns and it would be helpful to have that in some type of scientific form that can stand up to scrutiny.

When we raise this issue with the Minister, and it is interesting that Mr. Noonan wrote to the Minister about it, he automatically issues a reply in which he states that this is an unregulated market, he has no role in it and he has no evidence of cartels. In the regulated market for electricity and gas there are significant increases. The unregulated market has been subject to the criticism, which is mainly anecdotal, that there are regional cartels. I do not know if that is true; I have no way of assessing it. The National Consumer Agency is examining the issue. It might be related to transport costs but perhaps Mr. Noonan would comment on that.

If refining facilities are an issue, should we be addressing that in Ireland for the future? My last question relates to fuel stocks. What is the policy for ensuring there are fuel stocks into the future if we are heading into uncertain times?

Chairman

Does Mr. Noonan wish to reply to those questions?

Mr. Tom Noonan

Not particularly, but I will try my best. With regard to the environment and the question about why there is not more diesel available in Europe and why there is so much petrol, that is a question for the refiners. There is one refiner in Ireland but, unfortunately, it is not represented here this morning either. The reason we charge more for diesel than petrol is that we pay proportionately more for it. We have explained that in the paper. We have also explained how our prices have moved relative to the price we pay for the product. Whether it is shown on a graph or otherwise, it is there.

With regard to environmentally friendly fuels, I covered this in my comments earlier. Unlike some of our competitors here, we are a genuinely green organisation. We are the only company selling E85 at petrol pumps in Ireland and we were the first to introduce bioethanol. The Deputy mentioned the budget next week. We have noticed a major slowdown in the growth of bioethanol use. Since the middle of this year the vehicle registration tax arrangements have changed and now effectively penalise flexi-fuel vehicles. Yesterday I wrote to the Minister for Finance and asked him to consider reinstating the favourable VRT arrangements for flexi-fuel vehicles to promote further use of greener fuel.

Diesel is a green fuel but bioethanol, through the process of its production, is greener. In our case, we take it from a sustainable source. We buy as much of our bioethanol as possible from Carbery Milk Products. In fact, that bioethanol is a by-product of its cheese production. It is an extremely sustainable product as well as home produced. While it is available in limited quantities, we do our best to take as much as we can from the company.

Mr. Danny Murray

In reply to the question from Deputy McManus about the graph on prices, I will send her a graph of oil prices, that is, the prices we charge at Topaz stations against the average AA price in Ireland and the average AA price in the UK. The Deputy will see that the pattern is precisely the same. If one applies that across Europe, because the inputs are the same in the UK, Germany or France, the pattern is the same. I will send that graph to the Deputy.

Deputy Simon Coveney

Do prices rise and fall at all 104 Topaz stations at the same rate?

Mr. Danny Murray

Yes, in general terms.

Senator Jim Walsh

I welcome the representatives of the oil companies and thank them for their presentations. They obviously put a great deal of work into them and they are most informative, even if one would have to be au fait with the oil industry to decipher some of them. None the less, they are interesting.

Obviously the fluctuating market for crude oil gives an indication of how one can expect prices to move. The representatives made a distinction between those prices and refining prices. There is a difference and as that is where their cost base lies, that is what they must follow. What is the relationship between crude prices and the refining or Platts price? Obviously, the crude price must be a significant component of the cost of refining. There would also be capital and operating costs. Is there a ballpark percentage figure for the crude price?

Second, there is heavy emphasis on the duty on fuel. The VAT is a percentage while the duty is a fixed sum per litre. Would it be preferable if the duty was also a percentage, so it could rise and fall also? From the point of view the Exchequer the yield would not be as predictable, and this might not be the time for experimenting, but when oil prices are increasing the Exchequer would obviously benefit. I note that the margin taken by the suppliers appears to be fixed. Is that correct? The presentation by Topaz shows it as 9.2 and it remains the same fixed sum regardless of the pump prices.

My final question relates to the presentation from Maxol. It probably goes to the core of what prompted us to turn our attention to this issue. I note the formula for changing Maxol prices, and I assume a similar formula applies to all the oil companies. It is done weekly, each Wednesday, and the factors that are input include the Platts price, the variation with the previous week and the exchange rate between the dollar and euro. I assume there are fluctuations in refining prices, which would reflect the fluctuations in the oil prices, and that there would be variations week on week. In the currency market there have been considerable variations. That would indicate that the price at the pumps would change weekly, but that is not happening. The oil representatives are in the business to make profits for their companies. I expect there is a greater propensity to change the price when it is running against them than to change it when it is in their favour. What policing is done by the regulator in that regard?

The prices at my local petrol stations, which tended to be competitive in the past, are not quite so competitive now. They have been static for the last six or seven weeks, and one of those stations is a Topaz station. There is also a considerable difference in the prices charged over a distance of perhaps 20 km, although this is probably due to the operators of the petrol stations. The representatives will say it is competition between the retailers.

These are the issues. The core of our concerns is the discipline within the system to ensure that when the market is running in favour of the consumer, the consumer gets the benefit and that the benefit is not retained or delayed in the interests of the oil companies.

Mr. Tom Noonan

We do not run stations directly ourselves. Much as, on occasion, we might like to talk to people about their pump prices, it would be against the law for us to do so. In that regard, however, there was a review by the Competition Authority recently concerning the competition regulations effectively governing service stations — the ones that were brought in after the 1990 fair trade inquiry. We made a submission to that and asked the Competition Authority if it could consider giving us, the industry, authority to insist on people not charging over a certain price. In other words, to try to give us some input into making sure that ridiculously high prices are not charged by retailers. I am glad to say that the Competition Authority has responded favourably to that. We are still looking at what legal mechanism we can use to do that, but as I understand it now we have the right to insist that retailers do not charge over specified levels.

Deputy Liz McManus

Is there not a danger that people will go to that ceiling and that it will become the actual price?

Mr. Tom Noonan

I suppose we will have to suck it and see.

Deputy Liz McManus

I hope Mr. Noonan is sucking diesel.

Mr. Tom Noonan

We will be into breakfast rolls next. It is not good for our business to have exorbitantly high prices charged by particular retailers for their own ends or reasons. It is not easy for an oil company to retain its reputation. We have just about stepped above banks at this stage in the pecking order. Nonetheless, our reputations are hard earned and that is why we fight so hard to protect them. We do not want people overcharging so that is why we have taken that view. The Deputy's counter view is interesting, but I hope she is not right. If she is, the authority will be reviewing the regulations again in a couple of years so we will see what the experience is there. The other point——

Deputy Simon Coveney

Just to be clear——

Mr. Tom Noonan

May I deal with the other point?

Deputy Simon Coveney

Is Mr. Noonan saying that he does or does not talk to retailers about the price they are charging for petrol, if he thinks it is excessive?

Mr. Tom Noonan

No, we do not.

Deputy Simon Coveney

Has he not just said that he can now do it? I am trying to clarify that point.

Mr. Tom Noonan

I have explained that we made a submission to the Competition Authority that the industry should be allowed to set maximum prices for stations it supplies. The authority responded favourably. We are still studying how we will implement that, so we have not done anything practical about it yet but it was our proposal and one that we intend following through on. Of course, we need to be careful in terms of competition law and how we follow through. That is what we are looking at now.

I wish to return to the other point about whether prices move weekly or not. I am happy to let Mr. Murray answer that one. As regards one aspect of it, I would bring the committee back to what I said earlier, which is that Maxol is the only station in the country that actually publishes its wholesale prices. If one logs on to www.maxol.ie one will see our prices and the history of how they have changed. I sometimes get a little tired of answering questions from the media about what our prices were one or two months ago because I can refer them to our website. That is only indicative, however, because these are wholesale prices. We would of course have deals with various stations depending on the scale of their purchases from us, which would give discounts off those prices.

Senator Jim Walsh

What about rebates?

Mr. Tom Noonan

We would call the discounts rebates.

Senator Jim Walsh

It is probable, presumably, that the rebates are not being passed on. I know that retailers work on very tight margins.

Mr. Tom Noonan

I think that is a bit unfair on retailers. I often hear it said that prices do not change that often, but I see them changing. There are exceptions but on the route I take into work I pass a good number of stations — some are ours and others are those of competitors — and in fairness to them they do change. I think it is a misconception among the public, and a fairly glib misconception in some quarters as well. If the committee wants to test this, I suggest it should set up its own mechanism to monitor it.

Chairman

May I suggest a case involving one of Mr. Noonan's stations, which changes its prices three or four times a day? During the day when things are quiet it will have a low price, and in the mornings and evenings it will change to a high price. Is that good practice? It is one of Mr. Noonan's stations.

Mr. Tom Noonan

It is a very innovative practice.

Chairman

I am not asking whether or not it is innovative. Is it good practice? Is it acceptable practice?

Mr. Tom Noonan

It is not unacceptable——

Chairman

It is not unacceptable from Mr. Noonan's point of view?

Mr. Tom Noonan

——in the present regime. It is more important that we have frequent price changes than the opposite. I am glad that we have some cases of that. In terms of our business and how we focus on it, it is very easy to point at our prices because they are displayed on dirty great signs and one can see them. That is done to protect consumers who can decide to buy when they are at the price they want from us or from someone else. That is in contrast to other businesses I have mentioned. It is in contrast even to the pub trade. In the pub trade one still has the fantastic situation that if a person goes in one door they will be charged one price, while if they go in another door they will be charged a different price.

Chairman

I just want to be clear that it is acceptable practice for Maxol to do this.

Mr. Tom Noonan

No, Maxol does not do it. It does not encourage it.

Chairman

This is a station with "Maxol" emblazoned across it.

Mr. Tom Noonan

Yes.

Chairman

As far as 99% of the public are concerned it is known as a "Maxol" station.

Mr. Tom Noonan

Having gone to some lengths this morning, I hope I have made the point clearly enough that we do not operate any stations ourselves, and we do not control the pump prices.

Chairman

No, but I want it to be clear that Mr. Noonan finds it acceptable practice by agents using the Maxol logo that they can change their prices three times a day, effectively fooling the public. People pass the station and see a low price but when they come home from work the price has changed. When they go into work the price has also changed.

Mr. Tom Noonan

I do not know whether the intention is to hijack me with a question or not. I assume it is not. I can tell the Chairman, however, that it would be unfair of me to answer that question and unreasonable of anyone to expect me to answer it without going into that in detail. I can assure the Chairman that I am willing to take it up with him and go into it in detail. I will then give him an answer.

Chairman

I will give Mr. Noonan all the details.

Mr. Tom Noonan

I thank the Chairman.

Mr. Danny Murray

Deputy McManus raised the issue of prices at the pump. We had a situation last year concerning a famous station on Usher's Quay, which was one of our brands, and it was charging an outrageous price of €1.79 per litre.

Deputy Liz McManus

I remember it.

Mr. Danny Murray

I had to tell the media that I would not buy petrol there even though it was one of our branded stations. I said I would bypass it or if I was stuck I would buy a litre of petrol there and move on to the next station where prices were lower. That can be a big worry for us. Going back to Senator Walsh's point, I would be surprised if there is any station in Ireland that has not moved its price in the last seven weeks. I would be amazed because I do not think one exists, although the Senator may have an example.

Senator Jim Walsh

In fairness, it is the local one and he tended to be extremely competitive with one of the lowest prices in the country, and certainly in our area, for a long period. That price has remained pretty static for quite a considerable time. In fairness to Mr. Murray, it could be Tesco selling the petrol because there is a Tesco station in town, which came in and lowered the price. It has remained at that level of €1.24.9. There are other Topaz stations within 20 km that are selling petrol for €1.19.8 per litre.

Mr. Danny Murray

Obviously there is competition at play here. As against some of the other companies, we review our wholesale prices twice a week: once on a Wednesday and once on a Friday. Any of our dealers would have a price change twice a week. Obviously if they are a small station with a small turnover and had bought at a higher price they must sell that inventory off. There are swings and roundabouts, but I would be surprised if any station in the country has not changed its prices in seven weeks. There has been a lot of movement and prices have come down at the pumps quite substantially already. I think they will come down again as we go forward.

Senator Jim Walsh

By how much has Topaz's price to the retailers reduced in the last seven weeks?

Mr. Danny Murray

I do not have that figure at this time.

Senator Jim Walsh

Roughly.

Mr. Danny Murray

I will come back to the Senator.

Mr. Tom Noonan

I think the information is in my document.

Senator Jim Walsh

Can Mr. Noonan pinpoint it for us?

Mr. Tom Noonan

If the committee gives me a moment, I can.

Deputy Michael D’Arcy

It is a pleasure to welcome the witnesses. It was an opportunity for them to explain in detail the nuts and bolts of their industry. None of us on this side of the forum is that familiar with the industry, apart from the fact that we pay for fuel like every other consumer. I did not catch Mr. Noonan's contribution beforehand as, unfortunately, I got stuck in a traffic jam in Donnybrook.

Mr. Noonan should view this as an opportunity. We are not here on any version of a witch-hunt. We are here, as Deputy Coveney stated, to protect the consumer and to ensure that there is robust competition between the companies.

It is disappointing that one of the main players has chosen not to show up. Perhaps other members will be able to tell me whether this is the first time somebody did not take the opportunity to come in and put forward his or her position clearly.

There are a couple of matters I want to touch upon. It is a good practice that Maxol issues its wholesale prices on its website. I would like to see the other companies doing the same. It is just a remark. Regardless of whether they do, it is a matter for them. It would be helpful for the consumer to see the wholesale price and that the company down the road is charging significantly more than that.

I appreciate there are rebates and economies of scale that would be of benefit in terms of larger volumes and that are being passed on to the consumer. I know it is a high-volume, low-margin business. There are a number of issues that have not been addressed. Eighteen months ago, Ireland was trading at the EU average before duty, before the NORA levy and before VAT. We are now at 10% above the EU average, and I would like an explanation on that.

As I stated, it is important that there is robust competition between these companies. Frankly, the perception is that there is a cartel and, with three telephone calls between four companies, the price is fixed. Whether the companies are happy or displeased with that, that is the perception. This is a good opportunity for the company representatives to dispel that.

Mention was made of petrol and diesel at the forecourts, but facing into the winter the price of home heating oil has not been explored enough. Earlier Mr. Noonan referred to the Competition Authority. Some 17 criminal cases have been taken by the Competition Authority and there have been three convictions, one of which was by a jury. That is how serious the Competition Authority is taking the matter. Off the record, it is said that there is no point in the Competition Authority trying to take a case on petrol or diesel because it is not possible to win such a case. The oil companies, whether refineries or distributors, would have 50 barristers and the authority could win. The authority has won three cases, which has created a precedent in the courts, on home heating oil. I would like to hear the views of the company representatives on those. The three cases that have been taken and won were not with the company that is not represented here and I assume one, two or all three relate to the distributors represented.

Another matter is the relationship between distributors and the people on the forecourts. I have tried to pursue this matter on the basis that we get answers, not on the basis of a witch-hunt. However, there is an inherent link between them and they state they cannot say to somebody distributing oil in a station using their logo that the price is very expensive, even though Mr. Murray acknowledged the prices at the station on Ushers Quay were ridiculous. While I do not refer to that one, Topaz is the controlling company which owns 100 sites. Maxol also owns 100 sites and the companies operate under licence which is well established commercial practice. There is an inherent link in that at some stage there will be a review of the licence and the lease or whatever mechanism the companies use.

The relationship is too tight and the companies have these people in almost a vice-grip. They are renting from the companies. I use the word renting, but it is under a lease or a licence. The 100 companies to which I refer — the same may be said of Maxol — are on the distributor's property from whom they buy the oil. I am interested in hearing the companies' position. I wonder how often does a Maxol worker leave Maxol for Topaz, or a Texaco worker leave Texaco for one of the others. Is the pricing structure such that while they are allowed leave — there is nothing to block them from doing so — effectively when they are involved with a distribution company in this way it is not easy to leave. The company representatives are shaking their heads. I look forward to their response. As I stated, this is their opportunity to dispel the rumours and myths, and to put on the record what they believe is the position. Hopefully, they will not be like the banks in that regard. Those are the queries on which I want to hear responses.

Mr. James Twohig

I thank Deputy D'Arcy for those questions. He raised a few issues here and I will go through them as best I can. First, on publishing the wholesale schedule prices, we in Chevron Ireland do not do that but there is nothing preventing us from doing it other than getting technology set up to do so, and that is something that we are willing to look into. On how available that information is, we have 300 service stations — we have more than that in terms of commercial customers. Once we change our schedule prices we send out 600, 700 or 800 notifications on that price change. That information, while not published, is in the marketplace and can be readily sought if one is interested. We will take on board Deputy D'Arcy's point about getting that published and will look into that.

In terms of robust competition between companies, Deputy D'Arcy raised issues on the Competition Authority and convictions that it has secured. Obviously, from a consumer point of view, we would welcome any review of prices where there is a fear of collusion. The cases to which he specifically referred involved distributors in various geographical locations around the country and the convictions of which he spoke are of specific distributors operating on their own independent businesses and would have no involvement whatsoever in the wholesale company.

The companies here are most aware of all competition implications and would welcome any review that would put the consumer's mind at ease in that respect. We operate in an extremely competitive environment and in terms of readily published information, which would be specifically company financial accounts, one will find that the profits of the main wholesalers in this country are by no means excessive and could actually be viewed in the other light in terms of being minimal, if any. My company will be submitting our 2007 audited accounts to the Companies Registration Office in the next week or two and they will be there for the committee's review at that stage if it so wishes. We are very aware of competition authorities. We operate in a competitive environment and it is a tough business to be in from the wholesaler's perspective.

On the relationship between wholesalers and retailers, it is a competitive environment. No doubt where a wholesale company owns a retail site and has a retailer in there on a licence, or under whatever type of arrangement, the oil company very much has a hold or a strong relationship with that retailer to ensure that he or she supplies that company's brand. However, the other side of it is that the retailer must be able to operate in the current environment successfully, otherwise he or she would not be in business. It is incumbent on the wholesaler to ensure the retailer is competitive in the market. Independent retailers operate in the market.

In terms of the wholesaler's relationship with independent retailers, that is also a very competitive environment. There are instances where stations switch and they are keenly fought over. As stated earlier, we have lost in the order of 1,200 service stations in the past ten years. This illustrates the competitive environment that exists.

Mr. Danny Murray

I am somewhat unsure as to which company did not send representatives to this meeting. It could be any one of three or four.

Chairman

It was Esso.

Mr. Danny Murray

That is interesting. I thank the Chairman.

Mr. Tom Noonan

May I make a brief comment?

Chairman

I will ask Mr. Murray to conclude before Mr. Noonan intervenes.

Mr. Tom Noonan

What I have to say relates to that point.

Chairman

When Mr. Murray concludes, Mr. Noonan may come back in.

Mr. Danny Murray

I wish to address some of the points made by Deputy D'Arcy, particularly those relating to whether particular stations are connected to us. Topaz owns 106 stations, two of which, on foot of historical considerations, have licence-lease agreements. The people who operate the other 104 stations we own are our direct employees. They work for the company and we pay their wages. The managers who work at these stations can leave; there is no tie whatsoever to the company and, therefore, no influence.

We walked away from the station at Usher's Island on the day on which the contract of those who operate it concluded. We discontinued our connection with the station as a result of its reputation in respect of high prices.

On competition, Topaz bought the business of Shell and Statoil. All the other companies were involved in trying to take the business because everything was in a state of flux and people were concerned about a new player entering the marketplace. Let me send out a message to our competitors. We have our act together, we have our new brand in place and we will be going after their customers. There will be lots of competition.

Mr. Tom Noonan

If Mr. Murray is suggesting that we, in turn, should go after the Usher's Island station, our response is "No thanks".

Deputy Simon Coveney

It must be Esso's, is it?

Mr. Tom Noonan

I do not believe people were queuing up outside that station with contracts or in vehicles.

It was stated that there are only three or four companies involved in the business, but there are many more than that. The only reason members refer to three or four companies is that originally only two companies were invited to attend this meeting. That invitation was extended to include four companies but there are others which could have been invited. As members travel throughout the country, they will see the brands of the companies to which I refer on display. If they consult a list of the members of the Irish Petroleum Industry Association, they will see that there are more than just three or four members.

Those representing the companies invited to attend this meeting are here to try to answer questions. However, it is not the case that we have the whole thing to ourselves. If that is members' perception, I ask them to reconsider it.

Senator Maria Corrigan

I thank our guests for attending. Perhaps they should take it as a compliment that when we considered who to invite, their names immediately came to mind.

My interest in this area is relatively new and some of the questions I intend to pose may be somewhat simplistic. However, I am trying to follow what our guests stated during their presentation, particularly in the context of prices. I accept their point that we only hear about the price of crude oil, that they use Platts as their index and that there are a number of factors that contribute to the price of petrol and diesel, including the cost of refining and the value of the dollar.

When oil companies order diesel or unleaded petrol, is the price of the day applied at that stage? How long does it take for that diesel or unleaded petrol to be delivered to them? Do the companies supply diesel and petrol at the prices which they were obliged to pay when it was ordered? If there is a major surge in the cost of oil, petrol stations tend to increase their prices from midnight on the day on which that surge occurs. However, it appears to take longer for those prices to come down when there is a decrease in the cost of oil. One of the reasons sometimes given for the delay in reducing prices is that oil companies already have a supply of diesel or unleaded petrol on hand which was bought at the higher price. It is also stated that the price cannot be reduced until product bought at the new rate becomes available. What is the timeframe in respect of ordering product, the price being applied, delivery and its being sold on by the oil companies?

My second point relates to the difference in price between diesel and unleaded petrol. There has always been a difference in price between the two. For many years, however, it was diesel that was cheaper. In the past 15 to 18 months, the position has been reversed. I followed what was said in the context of the expected demand suddenly dropping and, therefore, the supply was not on hand. That argument may be reasonable as regards the initial period. However, when one considers the number of diesel powered cars that are being sold, there will obviously be a particular demand for diesel in the years to come. This clearly indicates that oil companies will have a greater demand to meet. The excuse regarding the low level of supply should only have applied for an extremely short period.

Is there an economy of scale which applies if it is necessary to purchase or refine more diesel and which would result in the price of this fuel being lower? It was stated that perhaps we are not considering the position with regard to the price of other products. It is frequently pointed out, however, that because Ireland has a relatively small population, sufficient demand, which would result in economies of scale and a reduction in prices, is not created. Given that the demand for diesel has increased in Ireland, should the price relating to it not be lower?

Mr. Danny Murray

The Senator raised a number of interesting points. When we purchase from a refinery, we place our order on the 15th day of the month prior to the month in which delivery is made. In other words, we plan ahead by three to six weeks. We pay the average price that applies during the month of delivery. We do that because we take in perhaps 13 million litres of petrol at a time. We pay for it at the average price, not one that is either very high or very low, because that is the way we sell it. That is our planning cycle. As stated earlier, we try to get back the average price of the month from the marketplace.

The Senator also referred to diesel and unleaded petrol. Perhaps she picked up on the point relating to supply and demand. European refineries can only produce X amount of diesel. As far as I can see, they cannot change that and they are obliged to import additional refined diesel product from further afield. There is much more demand for that product throughout Europe as a result of government decisions to the effect that more people should drive diesel cars. That is what is driving demand, particularly in France and Germany. There is not enough diesel to go around, supply is scarce and prices increase. One must view diesel in the context of heating oil and jet aviation fuel.

Senator Maria Corrigan

If it is such a coveted product and if the European refineries are limited with regard to the amount they can produce, does it not follow that they should try to increase their capacity?

Mr. Danny Murray

Only so much can be produced from a barrel. Every barrel produces petrol and diesel. If more diesel is made, more petrol will be made but there will be nowhere to sell it. That is the problem and that is why petrol is cheaper than diesel. It is simple economics. There is more demand for diesel than petrol.

Senator Maria Corrigan

Why then was there such a lengthy period during which petrol was more expensive than diesel?

Mr. Danny Murray

Because it was only in recent years that Ireland made the change to diesel products. That has happened across Europe over the past five to ten years.

Deputy John Browne

I welcome the delegations. I am disappointed Esso representatives did not turn up to make their case. I cannot say too much about its representatives because I have worked with them for 20 years and I am due a pension from the company in five years. Having been in the oil business for so long, I have heard it all before about the quick increases and the oil companies ripping off the consumer by not passing on the price decreases as quickly as they should. Mr. Twohig stated the crude oil price has decreased by 46% but the refineries have only decreased the price at which they sell by between 12% and 18%. Surely the companies that deal with refineries all the time should not accept such a small decrease by refineries, which are benefiting from the decrease in crude prices. Will he explain why refineries operate on that basis? Are they ripping off the consumer from a distance by not passing on decreases to the oil companies?

Mr. James Twohig

This comes back to the perceptions on pricing. Between July and September, the price of crude oil decreased by $46 a barrel and during the same time frame the published price for unleaded petrol and refined diesel reduced by 11.5 cent a litre and 15.7 cent a litre, respectively. Those are the decreases we have experienced in Ireland but they have not been affected by the currency movement relating to the barrel pricing in dollars. The refined product price decreases take into account the strengthening of the dollar against the euro.

Deputy John Browne

The strengthening of the dollar has only occurred recently.

Mr. James Twohig

It is the same period.

Deputy John Browne

If oil is bought on a six to eight-week basis, as the Topaz representative said——

Mr. James Twohig

One is paying for it on the basis of average current exchange rates as well. Even though one might order oil this month for next month, one pays at next month's prices using next month's exchange rates.

Deputy John Browne

There is a significant gap between a 46% decrease in the crude oil price and the 11% decrease in the refined price, even allowing for the strengthening of the dollar.

Mr. James Twohig

I will circulate an appendix to our presentation that will, I hope, explain my answer. If the exchange rate remained constant between July and September, the price of unleaded petrol would have decreased by more than 16 cent a litre rather than 11.5 cent a litre while the diesel price would have decreased by 21.5 cent per litre rather than 15.7 cent a litre. The price of a barrel of crude oil has reduced by approximately 30%. The prices of unleaded petrol and diesel at constant exchange rates have decreased by the same percentage and, therefore, in real terms, the price of the refined products have decreased by the same percentage as the price of a barrel of oil. We buy the product in euros and we have made the adjustment taking into account the strengthening exchange rate, which has been passed into the marketplace.

Deputy Michael D’Arcy

My earlier question was not answered regarding the EU 27 average over an 18-month period when the prices were much the same. They are 10% higher now compared with that period. The other countries are buying in euros and trading in dollars like Ireland.

Mr. James Twohig

I have no details on how European averages have changed. I can look into that and come back to the Deputy. However, being an island nation, freight costs are a factor unlike for countries on mainland Europe that have refineries.

Deputy Michael D’Arcy

Why during that 18-month period was the price the same? The Irish price was equivalent to the EU average.

Mr. Tom Noonan

The price we pay for the oil we import into Ireland is increasing in relative terms. There were more refineries a few years ago than there are now. The number of refineries in Europe has contracted significantly and, thus, the balance between supply and demand has changed. It was suggested that if we bought more diesel, we would pay a lower price but that is not the way it works. The refiners can service many other markets. They pick the ones they want to be in and they turn their backs on the ones they do not want to be in. Part ownership of a refinery on the west coast of the UK changed hands almost a year ago and the new owners decided not to supply the Irish market. As a result, the price of oil our company and others, not all of which are represented at the meeting, were purchasing increased. That probably goes some way to explaining this issue. We are not in the refinery business. Ours is as transparent a business as can be found. We are Irish-owned. We buy and import oil and we sell it a certain price. We publish our wholesale prices and the basic answer to many of the questions about why consumers pay more is because we, as suppliers, pay more.

Deputy Simon Coveney

Does hedging take place when the price is low? Have the companies reasonable storage capacity that they can avail of in the State in anticipation of price increases? Is the purchasing arrangement on a week to week or day to day basis whereby diesel and petrol is transferred from refineries directly into the companies' systems and then into their service stations?

The Topaz model is quite different from that used by Maxol and Texaco, which operate as wholesalers providing retailers with the product at a wholesale price. Maxol publishes the price on its website. Topaz is also a retailer with 104 outlets. Does the profit margin outlined in the presentation by Mr. Murray apply to all outlets? Does the pricing reflect the cost of doing business locally? I do not have a handle on whether the company prices differently in the 104 service stations and what factors determine price. In other words, if one of the 104 stations is in Donnybrook or in an affluent area, does the company charge more because more wealthy people live in the area or does it charge more in isolated, rural areas where people do not have a choice and competition does not work?

Unlike other oil companies in Ireland, Topaz Energy Limited has an opportunity to operate certain petrol stations as a loss leader, to build a brand and to build a reputation of providing a Ryanair-style supply of low cost fuel. I want to try to understand whether the company views itself as that type of price leader in the market as it has a retail advantage over some of its competitors. In the case of Maxol, it is looking at ways of doing this by talking to retailers about not over-charging and by setting a price ceiling, which is welcome. I would be interested to hear whether Chevron, Texaco and Topaz plan to do something similar with their retailers. We are working together here. The job of the companies is to try and maximise profits and our job is to ensure that there is a competitive market place working in both Dublin 4 and Cahirciveen. Many consumers are concerned that this is not the case.

Mr. Danny Murray

I make it clear to Deputy Coveney and to everybody here that our company makes less than 1 cent per litre across the year. We make less than 1 cent per litre on all our sales, when all things are taken into consideration. If I went out today and reduced our prices right across the board by 1 cent we would not make a profit. In the same case the Government gets 66 cent from some of the litres sold.

Deputy Simon Coveney

I have an issue with how fuel is taxed in Ireland but that is for another discussion. It is rare enough to get witnesses from the oil companies to appear before us so we are trying to establish what can be done in terms of the element of the price that is charged for fuel over which the companies have control and whether this can be reduced through more efficient competition.

Mr. Danny Murray

At the end of the day we have less than 1 cent per litre as our profit. I suggest the Deputy reads our published accounts.

Deputy Michael D’Arcy

That position is being put out by people in business. I note the company has a massive property portfolio and I assume it is expanding that property portfolio. The company has 106 stations. Is the company expanding its property portfolio and reducing its profit and then telling us the profit is only 1 cent per litre?

Mr. Danny Murray

That would exclude anything in property. We buy stations and we sell stations. This happens because of movement of populations and so on. As I said earlier, 1,200 stations have closed in Ireland over the past ten years. At least 1,100 of those closed because of competition. The committee wants to see competition and it wants us to show that competition is happening, but yet it wants a petrol station on every corner and that is not possible. The smaller stations will close over time. As I said in reply to Deputy McManus, we have corner shop stations and we have supermarket stations. The supermarket stations do better than the small corner shop ones. I hear people talking in different communities around the country and I use the Howth peninsula as a good example. They complain that there is no petrol station on the Howth peninsula. There used to be one and one could not get in or out of the peninsula without passing by its door. The reason he closed his door was that everybody drove by and did not buy petrol there. If all the people on the Howth Peninsula had bought petrol there, I guarantee that station would be open today.

Deputy Simon Coveney

We all know that people do not go into petrol stations just to buy petrol. There is now an interconnection between grocery shopping and convenience shopping. Any retailer who runs a petrol station will say the vast majority of the profits are made on what is sold in the shop not what is sold at the pump. They use the pump to bring in throughput of customers. The companies are subsidising what should be cheap fuel by selling high margin groceries and that is the way it works.

Mr. Danny Murray

I told the Deputy that we make 1 cent overall and that includes everything we make in the shop as well. I am telling the Deputy we make less than 1 cent overall and I am not telling him anything else. When we run our shops and pay our people and import the oil, the profit is 1 cent. He can either believe me or not but that is the fact.

Deputy John Browne

I have found in my years that the petrol station owner charges his or her own price and it has been noted that many of them are going out of business. I was talking to a person in my town this week who would have had huge sales of petrol and he told me that profit is so bad he is thinking of getting rid of the station and staying in the tyre business. The oil companies are getting a bad name with the consumers. In the six petrol stations in my town, I can guarantee that next Monday morning they will sell at a minimum price and if someone wants to charge more than that, so be it, but they will agree a minimum price in that town. If a person were to drive into that town this evening, they will all charge the same price or higher. There will be no competition. This is not the problem for oil companies but I wonder how they would deal with the PR battle. Let us call a spade a spade, consumers currently hold the view that the oil companies are not being fair with them in the prices they are being charged.

Mr. Danny Murray

They do not understand that we get so little and the Government gets 66.1 cent. The reality is that people do not understand that.

Deputy John Browne

The Government needs all this money.

Mr. Danny Murray

Of course it does; I do not begrudge them.

Deputy Peter Kelly

I welcome the delegation. I wish to make a comment before I ask any questions.

Chairman

The broadcasting unit has again requested that members switch off their mobile phones.

Deputy Peter Kelly

I apologise and I will switch it off.

I am from Longford. I could name nearly every filling station in the town and county of Longford and I could name the retailers who run them. They are usually family run. The services they provide are second to none. They have great forecourts and safety is paramount. Most of them have upgraded their forecourts to make them as safe as possible. They have very good shops and the staff are excellent and are all very pleasant, friendly, courteous, helpful staff. The management of the stations are very hard working and in some cases they work 24 hours a day. The public is getting a good product from the retailers. The only problem is that the public perceive the gentlemen in front of us as being billionaires. This is the perception and it may have been created by the programme "Dallas" . Years ago one never heard of anybody in the oil business as being poor. People would say, "Your man is in the oil business; he must be loaded. He has an uncle in Texas; he has sent it all to him." This is the perception. The public perceive the price of petrol, diesel and oil as being too dear. The oil companies are not getting the message across. I feel sorry for Mr. Murray and it is very sad he is only making a profit of 1 cent. I hope he makes more in the next year and I hope things improve a little as I am sure they will. Can these lads lower the price by buying a couple of oil refineries themselves and go into the crude oil business or a different oil business? Is it the case that they are strictly the Irish petroleum industry association who are just wholesalers and that is that? Does the delegation believe us when we tell them that the public perception is that the companies are charging too much?

Mr. Danny Murray

Absolutely.

Deputy Peter Kelly

That is good; it means you are hearing the same message.

Mr. Tom Noonan

Do they believe us? Do members of the committee believe us when we try to explain in a very logical and sensible way that we are not making a fortune out of this business? I will refer to our accounts which have not yet been published but will be shortly. Last year our turnover was almost €700 million and the profit attributable to the group after tax was €10.2 million, which is not a fortune. What is that as a percentage?

Deputy Michael D’Arcy

Is Mr. Noonan saying turnover has reduced by €100 million since 2006?

Mr. Tom Noonan

Yes, by more than €100 million.

Deputy Michael D’Arcy

Why?

Mr. Tom Noonan

That is a commercial matter. It was because we reconfigured our business. If members look at our figures for 2006, they will see we had a turnover of €810 million and that our profit was €3.8 million.

Deputy Michael D’Arcy

Is it the same for the other players? Has their turnover reduced?

Mr. James Twohig

Yes; operating profitability is also down.

Deputy Michael D’Arcy

Has it reduced because there are other players in the market who are taking the market share?

Mr. James Twohig

We find that it is a very competitive environment. I again refer to the point made earlier that while there is only a representation of some of the companies operating in the country present, there are plenty of operators, some of them operating in various guises, low cost operators——

Deputy Michael D’Arcy

Below cost.

Mr. Tom Noonan

Not consciously below cost.

Deputy Michael D’Arcy

I am thinking of Tesco.

Mr. Tom Noonan

There are people who would be better placed to comment on this matter than me. For what it is worth, to my mind the Tesco model is a low enough price for motor fuel to get people into its stores because after it they may be very conscious about the price they pay for their motor fuel, but they are not half as conscious about what they are paying after they go into the supermarket. One can see this time and again.

Deputy Michael D’Arcy

Who supplies Tesco?

Mr. Danny Murray

Topaz.

Deputy Michael D’Arcy

One cent.

Mr. Danny Murray

Less I am sure. I am not sure about its model here, but in the United Kingdom, as far as I understand, the idea as regards its supermarkets having and selling petrol is not to say anything about the price of petrol; rather it is to say its beans and peas are cheap inside the store. In the United Kingdom where it has killed some of the local towns and villages with its superstores, the price is aimed at attracting people to drive 25 miles and making them feel it does not cost them anything to get there because they can buy cheap petrol. It has been dreadful for the United Kingdom and we must make sure it does not happen here.

Deputy Michael D’Arcy

Would we have Mr. Murray on board supporting us?

Mr. Danny Murray

Yes.

Deputy Michael D’Arcy

Good.

Deputy Simon Coveney

Mr. Murray made a big issue of the 1 cent figure. Is that 1 cent per litre or is it 1%.

Mr. Danny Murray

It is 1 cent per litre.

Deputy Simon Coveney

Is that the difference——

Mr. Danny Murray

It is no more than——

Deputy Simon Coveney

I know everyone is operating on tight margins here and accept this is a very high volume low margin business. Our job is——

Mr. Danny Murray

The Government receives 66 cent per litre.

Deputy Simon Coveney

I also accept that. Is that the difference between Topaz's wholesale and retail margins or is it the actual margin per litre?

Mr. Danny Murray

It is our overall bottom-line profit figure in our published accounts. After we have met all our expenses and taking our income from all sources it is less than 1 cent per litre. I do not think I can be any clearer.

Chairman

I thank all the delegates for attending. They have clarified many of issues for committee members. I express our disappointment at the refusal of representatives of Esso to attend. When they read the transcript of the meeting, they might regret their decision. However, it is not for us to form a judgment.

The joint committee adjourned at 11.35 a.m. until 9.30 a.m. on Wednesday, 15 October 2008.