Petroleum Pricing Systems (PPS)
The Automatic Pricing Mechanism (APM) was introduced in April 2004 to directly pass through to the market all price changes on shipments of Gasoline and Gasoil imported by the State Trading Corporation (STC).
Changes in the retail prices were initially at three month intervals and as from November 2008 the frequency of these changes became monthly. In July 2006, Fuel Oil was included under the APM.
It has been observed that consumers find it hard to reconcile actual oil price movements on the world market with the domestic price changes certified at each APM. Indeed, the following main factors render the exercise fairly complex.
As shipments of petroleum products reach Mauritius every 20 days, in any calendar month, STC receives one tanker of Gasoline and Gasoil, and, in the following month, it receives two tankers.
Nevertheless, a fixed monthly quantity, i.e. one twelfth of total annual volume of imports, is used in the monthly price computations. In fact, the quantity received in one month is less than one twelfth of annual volume in the first case, whereas it is more than one sixth in the second when two shipments arrive. Since only the one twelfth factor is invariably utilized, this mismatch distorts the calculation of the price per litre.
After each APM exercise, oil companies and filling stations experience windfall gains or windfall losses, based on stocks held by them on the date on which prices are changed. When price goes up, they stand to gain on stocks already held by them. STC determines the amount of the gain, referred to as windfall gain, and collects that amount from them.
When price goes down after an APM, they stand to lose on existing stocks. STC pays them for such losses referred to as windfall losses.
Such payments are considered as a charge to be added to the cost of products in the following APM exercise. Therefore, a refund of windfall loss in one month becomes an added cost to fuel pricing in the following month. The price goes up. The reverse is also true.
As a result a windfall gain results in lower price; lower price results in windfall loss, windfall loss results in price increase, and it goes on like this. The press refers to it as the ‘yoyo’ effect on oil prices.
Exchange Rates in Price Fixing
In practice, an estimated exchange rate is used for pricing. It is the rate of the Bank of Mauritius (BOM) or the rate at which the Corporation has purchased USD in the preceding month, whichever is the higher.
Payment to supplier is actually made by STC 60 days from Bill of Lading date. It is only then that the effective exchange rate for that shipment becomes known. An adjustment has, therefore, to be made in the following price fixing exercise.
Implementation of the Petroleum Pricing System
In order to simplify the complexity of the APM, a Petroleum Pricing System (PPS) is being introduced for the price-fixing exercise. Fuel Oil is being removed from the PPS. The main objective of the new system is to mitigate the effects of world price movements on actual retail price.
The price for the products will be initially based on the average of the price for the last 6 months and the forward prices for the next 6 months plus a margin. This margin is required to build up a buffer to enable the price stabilization to be supported.
Price Stabilisation Account (PSA)
The new system will make provision for a Price Stabilisation Account which will have as objective to maintain a single price over a longer period of time.
A separate PSA will be kept in respect of each product namely Gasoline and Gasoil. Any surplus /deficit for each consignment will be transferred to the PSA.
Payments and refunds of Windfall Gain/Loss will be dealt through the PSA. They will occur rarely and not monthly.
Timing of Price Fixing
Any price revision for Gasoline and Gasoil will be carried out separately depending on the evolution of world prices and the balance in the PSA in respect of each product.
The Consumer Protection (Control of Price of Petroleum Products) Regulations 2004 are revoked and replaced by the Consumer Protection (Control of Price of Petroleum Products) Regulations 2011.