The retail fuel industry (gas stations) is in a love-hate and sometimes abusive relationship with the State; when prices at the pump increase, gas station owners/dealers must beg for an increase in margins or face permanent closure.
What many consumers may not know is there are four types of gas station dealers:
1. Dealer-owned and operated – these are owned and operated by the dealer
2. Franchisee – where the wholesaler pays a commission to the operator while maintaining the majority of the retail commission
3. Lessee – where the dealer rents from the wholesaler
4. Company-owned and operated – where the fuel wholesaler owns and operates the station and benefits from both wholesale and retail margins.
Dealer-owned/operated “owner/dealers” like myself are not managed by any of the two fuel wholesalers (National Petroleum Marketing Company “NPMC”or Unipet) but simply purchase based on a fuel supply terms and agreement with the wholesaler. Owner/dealers do not benefit from wholesale margins or government grants/subventions or are able to make losses at the expense of taxpayers. Owner/dealers do not receive any funding from the State. My intimate understanding of this industry was garnered through almost 30 years of being an owner and operator of a gas station.
Based on the events of the last two years, gas stations and its staff are certainly not considered an essential service or frontline employees despite our exposure hundreds persons on a daily basis inclusive of the protective, emergency, health and similar state entities. The consideration received when vaccinations were being offered to “frontline” employees left much to be desired and lobbying for same were heed around the same time vaccination was opened to the general public.
During the State of Emergency some service stations that remained open suffered major losses in order to provide fuel for other frontline workers. Community service runs through the veins of some dealers like myself and this is to our own detriment due to misinformation and the lack of understanding about our industry – the retail fuel industry.
Misconception #1
The retail fuel margin is a profit margin.
The retail fuel margin in Trinidad is not a profit margin but simply a commission per litre of fuel sold. For example, if you purchase one litre of fuel for TT$5.75 today, and our commission on that litre is TT$0.27, when the price increases tomorrow to TT$6.75, our commission on that increased price remains at TT$0.27. Not only would customers have to pay more for fuel at the pump but owner/dealers would have to pay our wholesaler more for the same amount of fuel, manage our expenses at the same TT$0.27 per litre of fuel sold and provide service to our respective communities.
In other words, as the price at the pump increases, our commission per litre remains the same and our rate of return on investment per dollar spent decreases with any price increase at the pump.
Misconception #2
The fuel subsidy started being removed after September 2015.
Only persons directly affected by fuel price increases will remember that the removal of the fuel subsidy did not start in 2015 but was in the making since 2010 and actually commenced on October 2, 2012 with the increase in premium grade fuel to from $4 to $5.75 under the previous administration; this appeared to have set the momentum for the removal of the fuel subsidy today.
Additionally, gas stations did not get any increase in “margins” despite this large increase in fuel price at the pump. Perhaps the Minister of Energy at that time did not see the need for any increase in fuel retail margins which remained stagnant since 2005; a minor commission increase was given to fuel retailers in August 2020 by the current administration.
Misconception #3
The average Joe believes that gas station owners/dealers will benefit from any increase in fuel prices at the pump.
Nothing could be further from the truth. With the increase in fuel price at the pump of TT$1 on gas and TT$0.50 on Diesel which took effect on Tuesday April 19, 2022 as announced by the Minister of Finance, there is no change in the retail fuel commission/ “margin” for gas stations. Therefore, gas stations must purchase fuel at a higher price from fuel wholesalers, manage expenses at 2020 commissions, pay more taxes, higher bank charges/interest rates, etc.
Example: If a customer spends $100 worth in fuel, the following table provides a simple snapshot of the impact on the price increases on gas station retail “margins”.
According to a National Association of Convenience Stores (NACS) daily news letter release dated April 18, 2022, the Retail Gas Price is US$4.087 per gallon and the Retail Fuel Margin is US$0.537 per gallon.
This being said, average retail fuel margins in Trinidad and Tobago are approximately 4.5 per cent while the industry standard is approximately 13.14 per cent according NACS, the leading global trade association.
It is important to note that businesses with low profit margins remain vulnerable to unexpected costs. Similar to a fish swimming upstream, it takes more effort to get to where you need to be if your profit margins are low especially in a highly regulated industry.
Misconception #4
For gas stations to make a profit you must operate a convenience store.
The question should be: “Why can’t a fuel only service station make a profit?” The inference that a convenience store is required for gas stations to make a profit is similar to funding inefficiencies within State enterprises by taxing the citizens more.
Given the foregoing misconceptions and clarification of same, meaningful consultation between the State, the association and owner/dealers in the retail fuel industry is needed to ensure the viability of this industry.
If left without any resolution, the following should come as no surprise:
1. Decreased in hours or days of operation
2. Operating as a self-service gas station
3. Introducing a minimum on Linx/credit card transaction or removal of this convenience
4. Decreased private investments in electric vehicle charging stations and station upgrades
5. Closure of smaller gas stations and/or dealer-owned and operated gas stations
6. Increased funding from taxpayers being injected into State-run enterprises
7. General increase in the cost of living.
Recommendations
Consideration should be given to the following to secure the viability of the retail fuel industry:
1. Amend the Green Fund and Business Levy calculation to be based on the commission rather than the fuel sales. Gas stations do not manufacture or generate revenue from fuel sales as the industry is highly regulated by the State. It simply distributes fuel to the travelling public and collect revenue for the State.
The present calculation of this tax is prejudice given agencies such as the agents of the National Lotteries Control Board, travel agencies and insurance companies are taxed based on the commission not on sales as is the case with gas stations.
2. For owner/dealers to put differences aside and unite. It is no longer a NPMC versus Unipet issue. It is the personal investment of dealer owners are used to distribute fuel on behalf of these entities for the State. There are many issues which impact our industry that are not being addressed.
3. For meaningful dialogue to occur between the Ministry of Energy and Energy Affairs, the Ministry of Finance and gas station owner/dealers.
4. A partial or full removal of VAT on fuel to benefit consumers by increasing the value of their disposable income.
If an owner/dealer that belongs to a retail network of 25 gas stations can raise red flags about a failing retail fuel industry plagued with statutory obligations pinned on sales and not the commission it receives, what can be said about company-owned and operated gas stations outside of this network? The increase in fuel prices means that gas station owners will have to dig deeper into their pockets to replenish their stock.
