LCQ22: Competition conditions of auto-fuels market in Hong Kong
Following is a question by the Hon Holden Chow and a written reply by the Secretary for Commerce and Economic Development, Mr Gregory So, in the Legislative Council today (February 22):
The Competition Ordinance (Cap. 619) (the Ordinance) has come into full operation since December 14, 2015 and the Competition Commission (the Commission) is tasked with the enforcement duties of the Ordinance. More than a year ago, a number of transport trade organisations complained to the Commission that as auto-fuel prices at various petrol filling stations had been the same for a long time, they suspected that there was collusive price-fixing among the oil companies concerned. They also pointed out that all along the fuel price adjustment mechanisms of major oil companies lacked transparency and whenever the price of international crude oil dropped, oil companies did not lower their fuel prices by similar magnitude. In this connection, will the Government inform this Council:
(1) whether it has studied why the prices of auto-fuels sold at petrol filling stations operated by different oil companies at different locations have all along been the same; if so, of the details, and whether such reasons include the existence of loopholes in the monitoring mechanism; of the measures to ensure that oil companies in Hong Kong will not engage in anti-competitive conduct in contravention of the relevant requirements of the Ordinance;
(2) given that the Commission commenced last year an investigation into auto-fuel prices, whether the authorities know the progress and outcome of the investigation; if the investigation report has been completed, of its publication date; and
(3) whether the authorities have proactively provided support for the Commission in the aforesaid investigation; if so, of the details; if not, whether the authorities will consider providing such support, with a view to ensuring that participants of the auto-fuel market will comply with the relevant requirements of the Ordinance?
After consulting the Environment Bureau (ENB), my consolidated reply to the question raised by the Hon Chow is as follows:
(1) In a free market economy, retail prices of auto-fuels in Hong Kong are determined by oil companies having regard to commercial practices and their operating costs. The role of the Government is to endeavour to ensure a stable fuel supply, maintain market openness, and remove barriers to enter into the market to enhance competition. We also endeavour to improve the transparency of the prices of auto-fuels products to facilitate consumers to make choices. We appreciate the impact of the auto-fuels prices on the public and have been monitoring the changes in local retail prices of auto-fuels and comparing them with the trend movements of international oil prices (benchmarked against the Singapore free-on-board prices, i.e. Means of Platts Singapore, for unleaded petrol and motor vehicle diesel). The Government will urge oil companies to promptly reduce their retail prices where necessary in order to lessen the burden of the general public. Although the trend movements of oil companies' retail prices of auto-fuels are similar, the discounts and promotions offered to consumers by oil companies do vary and the ultimate prices shouldered by consumers are actually different.
The First Conduct Rule of the Competition Ordinance (the Ordinance) prohibits agreements, concerted practices and decisions of associations of undertakings that have the object or effect to prevent, restrict or distort competition in Hong Kong. Price fixing is one of the four types of serious anti-competitive conducts prohibited by the First Conduct Rule. However, the Ordinance does not regulate the price levels set by businesses in the market.
The Competition Commission (the Commission) is an independent statutory authority which enforces the Ordinance. It determines its own work arrangements, including those on investigation. If there is evidence showing that there are agreements or coordination between oil companies to manipulate prices, the Commission may conduct investigation pursuant to the First Conduct Rule of the Ordinance.
(2) In view of public concern on auto-fuels prices in Hong Kong, the Commission is conducting a market study in this regard. The study aims to better understand the auto-fuels market, including the competition conditions and prices. The Commission is finalising the study and the results are expected to be released as soon as practicable.
(3) Regarding the Commission's study on the auto-fuels market in Hong Kong, ENB has, upon request of the Commission, provided data of the past few years, such as the record of pump price adjustments by oil companies (including the effective dates and magnitudes of price adjustments).
Ends/Wednesday, February 22, 2017