Fuel Pricing

Fuel Industry Regulation

Alternative Fuel Development Projects

Question(s) and Answer(s).

Tonga Competent Authority (TCA) is the regulatory body of petroleum prices in Tonga under MCTL.

Fuel prices changed on a monthly basis and reviewed annually.

LPG price changed on quarterly basis and reviewed annually.

Price verifications is conducted by Hale & Twomey Ltd, petroleum consultant from NZ.

Petroleum prices are regulated by TCA under Section 5 of the Price & Wages Control Act 1988 administered by MCTL.

Tonga market is supplied by 2 major oil companies (Pacific Energy & Total Fiji).

Fuel Quality/Standards – ULP 92 RON, ADO-500ppm, DPK- dual purpose kerosene.

Lowest cost supplier sets the single market price.

Fuel prices are determined and built up based on TCA approved parameters in the Tonga Fuel Pricing Template (TFPT).

TFPT component includes;

Weighted average of published daily MOPs prices

MR Freight considers the Worlsdcale rates for 3 ports discharge, freight rate assessment and the voyage premiums

Insurance cost

Product premiums and ocean losses

Demurrage allowance

Storage and Handling cost in Fiji

LCT freight to Tonga

Wharfage & Duty

Distribution cost & Return on investment

Consumption Tax

Retail Margin

Local charges Wharfage. Taxes:-Duty and Consumption Tax. Government Duty

Unleaded Petrol-50spl Diesel-50spl Kerosene-exempt from duty.

Diesel for Power generation is exempt from Duty.

Government also imposed 15% Consumption Tax on the price of all imported fuel.

Breakdown in product cost components for November 2014 price:

Diesel Petrol Oil Company Cost & margin- 7% 7% Duty, taxes and wharfage- 34% 34% Freight Fiji to Tonga- 5% 4% Fiji Freight, storage and handling-5% 7% Singapore FOB- 49% 48%

Retail Margin is currently capped at 14 seniti/litre for Diesel and Petrol

RETAIL MARGIN

TCA approved in 2007 a 7% retail margin, a shifting from 6 seniti

per litre (fixed).

Due to hike in the prices in 2008, TCA approved in 2009 to cap the retail margins at 14 seniti/litre for petrol and diesel, and 11.30 seniti/litre for kerosene (excluding Consumption Tax).

No changes were made to the retail margin caps following the 2014 Annual Price Review.

TCA has approved to review the retail margins in the next Annual Price Review, 2015.

Consultations with the retail outlet is underway to allow timely preparation of required information for the price review.

Price restatement occurs monthly based on Oil Companies submissions following agreed timeframe for price revisions.

Monthly price restatement adjusts changes in the exchange rate, MOPS, Bunker rate while other components are reviewed annually.

Annual Petroleum Pricing Review covers adjustment on operating cost, freight, Insurance, Ocean loss, demurrage, ROI, Distribution costs etc.

TFPT components are reviewed based on the 4 different methodology below:

Monthly restatement of product prices;

Annual Review of supplier`s statutory audited accounts;

Triennial Review assessing the entire regulatory regime; and

Ad hoc review of various costs and profit elements

TCA under the Ministry of Commerce, Tourism and Labour is the Price regulatory authority in Tonga.

Role of TCA is to fix the maximum price of 15 regulated goods including petroleum products.

TCA was established under Section 5 of the Price and Wages Control Act 1988 to perform the following functions:

Fix Maximum Prices of Goods or Services Prescribe manner to obtain maximum price Fix Minimum Wage Rates

There are 5 permanent member of the TCA Committee and 2 co-opt members.

The TCA Committee is chaired by the Minister for Commerce, Tourism & Labour.

Primary purpose Act of Parliament

Price regulation Price and Wage Control Act 1988

Environment Protection Waste Management Act Environmental Impact Assessment Act 2003 Marine Pollution Prevention Act 2002

Licensing Business Licenses Act 2002

Petroleum downstream supply chain

Petroleum Act

Safety Fatal Accidents Act

Shipping Shipping Act Marine Insurance Act Carriage of Goods by Sea Act

Taxation & excise duty Consumption Tax Act Revenue Administration Act 2000 Customs and Excise Act Weight and Measures Act

There are 3 points worth mentioning about Tonga`s laws and regulation for Petroleum Sector:

Tonga`s laws and regulations make reference to international regulations, conventions and treaties;

Tonga`s laws and regulations are old; and

Petroleum sector safety and environmental risks are managed by the petroleum industry applying both company specific and international standards.

Acts affecting the pricing of petroleum products in Tonga are:

Petroleum Act;

Price and Wage Control Act; and

Customs and Excise Act, which provides import duty exemptions on fuel imported for use in power generation and domestic airline and shipping.

TCA under MCTL regulated 15 goods.

List of goods controlled by TCA:- Rice, Sugar, Flour, Salt, Butter/Margarine, Baby Milk, Tea,

Coffee/Milo/Cocoa, Edible Oil, Cheese/Dripping, Infant Goods for babies, White benzene, All lubricant oil, Insecticide/weedicides/fungicides for agriculture use, Chemicals, fertilizer for agricultural use.

MCTL Price Control Division monitor and enforce compliance with the Price and Wages Control Act.

Tonga currently has no legislation standards.

Petroleum Act and Regulations allow for fuel testing but do not appear to specify fuel standards for Tonga.

Tonga`s petrol and diesel fuel standards are largely determined by the Oil suppliers with the approval of the TCA.

Tonga effectively supplied with same fuel standards as Fiji, the main fuel supply hub for Tonga.

Tonga shift from 5000ppm to 500ppm in 2011.

Although there is an international shift towards higher quality standards fuels, there is no proposed plan for Tonga.

Oil companies operate under international standards for petroleum handling and storage.

International standards are more stringent and specific than the general requirement set out in Tonga`s Petroleum Act.

LPG gas suppliers operate to standards set by the Australian Gas Association (AGA).

Waste Plastic into petroleum by Eagle Pacific Enterprise.

Plant will recycle plastic to create “sweet” crude oil (low sulfur without little contaminants), and refine the oil into consumer and business grade fuel.

Feasibility study to be conducted on Biofuel using algae over coconut, cassava and other local resources.

Lack of expertise;

Lack of trainings;

Outdated legislations;

Lack of financial resources to carry out timely reviews;

No regular reviews of fuel quality standards in Tonga;

Late submission of audited financial report from Oil Companies;

Lack of greater scrutiny of petroleum company costs.

MRT direct from Singapore to Tonga (bypass Fiji);

Review legislations;

Regular review of fuel standards;

Revise petroleum pricing system with the assistance of SPC

Utilise potential biofuel;