10 Dec PRIVATISATION OF GAS STATIONS: THE POTENTIAL IMPACT ON PRICES AT THE PUMP
Recently, the Government of Trinidad & Tobago signaled its intention to privatize its National Petroleum gas stations, with the intention to free up the retail gas station industry. In a country which has long operated under a system of fixed petrol prices set by the State, such a shift will not be simple and can impact petrol prices at the pump.
On one hand, increased competition can be positive for consumers as it encourages a level-playing field amongst competitors, which can in turn bring out the best in terms of quality and pricing, advanced technology and new products, to the benefit of consumers. Increased competition in this sector could therefore push gas station operators to lower operating costs, improve efficiencies and create savings that ultimately benefit consumers. Creating a competitive environment in the retail gas station industry, in which the market will determine the price of petrol, may be a good thing for consumers in the long run if it means that the price at the pump remains low or at best is reasonably priced.
That said, there is a risk that privatization, if left unchecked or not controlled, could have the opposite effect and result in an increase in prices. Without government control over petrol prices, the opportunity for service providers to engage in anti-competitive conduct to the detriment of consumers exists.
This means that for a newly privatized retail gas station industry, the importance of a regulating body that investigates and monitors to ensure that operators do not engage in anti-competitive conduct that will create an unfair disadvantage for consumers cannot be underscored enough.
It would be fair to say that in more recent times, there has been more public scrutiny by local regulators looking for evidence of not only anti-competitive behaviour by businesses but also for breaches of consumer protection laws and excessive pricing. Agencies such as the Consumer Affairs Division and the Fair Trading Commission (the latter now armed with the recently proclaimed anti-competitiion legislation in the Fair Trading Act) will need to take a more vigilant, proactive approach going forward.
Companies tend to have better access to resources and technology which make them better equipped and organized with a better understanding of the market but can also make them better placed to engage in anti-competitve arrangements which operate to the detriment of consumers. Cartels are one example of these type of illegal agreements amongst competitors which are hard to trace but which manipulate consumers through price fixing, bid-rigging, sharing markets, output restrictions which inflate prices, reduce consumer choice and hurt the economy.
Even with the presence of anti-competition and consumer protection laws in place to provide protection for the consumer, it is still important for consumers to adopt a proactive approach by being on the lookout for developing trends in the retail gas station industry when it comes on stream. Some warning signs include exorbitant and inflexible prices, drops in supply, undercutting amongst competing retail operators forcing them to exit the market and restrictions on consumer choice.
This newly created retail gas station market will hopefully open up opportunities for the growth of a competitive market, which will act to the benefit of operator and consumer alike.