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Economists weigh in on $25 million fuel contract

There is no evidence to prove that Petroleum Products Supplies Ltd (P.P.S.) as a monopoly is driving up prices of fuel in Samoa, economists say.

The opinion of the economists were sought following concerns expressed by Member of Parliament, Sulamanaia Tauili’ili Tuivasa, that having one supplier of fuel is driving up the prices.

But prominent economists around the region told the Samoa Observer that although monopolies are often viewed as a great way to score large profits, monopolies also has advantages that are often ignored.

Economist, Peniamina Muliaina, who is also a senior lecturer at the Faculty of Business and Entrepreneurship, at the National University of Samoa, said most people look more at the disadvantages of monopoly and ignore the advantage. 

"It must be remembered that theory is theory and reality is reality," he said.

"My questions are: are the rises in the price of oil the results of monopoly trying to earn profits or the results of external factors?

"Who else other than P.P.S. is (are) able to ship in oil at a price cheaper than the one the current distributor of oil charges?."

Last week, the Vice Chairman of the Tenders Board, Papali’i Niko Lee Hang, backed the awarding of the $25 million contract to P.P.S. to be Samoa’s sole bulk fuel supplier.   

“The tender for the fuel is for five years and the P.P.S. offered the lowest bid. End of story. There is nothing more to it, other than the fact that the P.P.S. bid was the lowest," said Papali'i.

“If you look at the other Pacific Countries, Samoa pays the lowest in the fuel.

"And while the price of oil fluctuates, the P.P.S. does not charge us based on that, the contract of $25 million is all that we pay for five years".

Papalii said in the past, three fuel companies were in the country and cost of fuel was significant as they were "playing with the prices".

He said this has stopped since the implementation of the bidding process.

Economist Mr. Muliaina said people needs to keep in mind that P.P.S. is not a supplier of oil but a distributor of oil, and oil production itself is susceptible to external factors.

"If the view (theory) is that PPS is playing monopoly because they have been given the sole right to ship in oil, my question is: what evidence is there that by allocating the rights to more than one distributor will result in lower oil prices?," he asked.

Mr. Muliaina added that it is "careless" and "silly" to say that P.P.S. as a monopoly is profiting from being a sole trader in Samoa without evidence.

Timo Henckel, a senior lecturer at the Australian National University (A.N.U.) College of Business and Economics and ANU College of Asia and the Pacific echoed similar remarks.

"The question is whether merely adding one more competitor, that is, moving from a monopoly to a duopoly, is going to better? And that is difficult to predict," he said.

Neelesh Gounder, a senior lecturer from Faculty of Business and Economics at the University of the South Pacific in Fiji told the Samoa Observer that the Government might benefit from commissioning a study that identifies the impact of bringing more competition and whether competition will work well for retail fuel consumers.

Fuel prices are reviewed on a monthly basis in Samoa. 

A 2018 analysis of Pacific petroleum market for the first quarter of 2018 conducted by the Pacific Community found that Samoa has one of the lowest pre-tax prices for gasoline, kerosene and diesel fuel in the region, behind Fiji. 

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