St Helena : Crude Blows Hit St. Helena
Submitted by Saint Helena Herald (Juanita Brock) 27.11.2005 (Article Archived on 11.12.2005)
This item was published in the 25 November 2005 Edition of the St. Helena Herald.
Crude Blows Hit St Helena
An Item Published in the St. Helena Herald
The chilly winds of economic reality blew a rare and unwelcome gust upon St Helena last week, when it was announced that fuel prices were finally set to rise.
Solomons stated that from 15th November, as a result of the Bulk Fuel Installation increasing the cost of wholesale fuel, the retail price of diesel has risen from 53p to 58p per litre, and from 72p to 80p in the case of petrol. Linda Clemett, the Chief Financial Secretary, very kindly agreed to go into the details of how the island manages its fuel consumption.
“The fuel is initially purchased by the Bulk Fuel Installation (BFI), which is owned by the Government, and run by Solomons. Two years ago an ordinance was set up to start an agency whose sole job would be to manage fuel, so that any price rises would be up to the agency and not the Government, as is the case at the moment. Under the present arrangement, the BFI sells its fuel to Solomons, the power station etc., and it is then up to Solomons to distribute the fuel to its various outlets.
“In the financial year 2003/04, the BFI sold fuel worth £1.7m, having originally bought the fuel for £1.2m. That means that, even after allowing for overheads such as the cost of staffing BFI, the latter made a profit of around £250,000. We always run at a surplus, as it means that we are able to put money aside for future needs. It is important to have an operating profit, as it helps with any expansion that might be needed in the future.
“The problem recently has been that, due to world oil prices, the last two shipments have cost more than we were able recoup from selling the fuel. In short, we’re running at a loss. So I proposed that we put prices up, in order to stop us eating into our retained profit, which we need to use if we are to manage our cash flow. Even with the recent rise in prices, however, we are running completely at cost, which means that we are not putting anything aside for future expansion or emergencies. That is why there will be another rise in January: - it’ll give us a small profit again.”
I asked Linda how the BFI prices are reflected in other parts of the economy, such as the cost of fuel from Solomons, or the price of electricity, to give two examples. “The BFI sells the oil to Solomons, but we leave them to decide the price they charge at the pumps. I do keep an eye on Solomons however, as they are only allowed to mark fuel up to a certain limit. Below that limit though, Solomons are free to announce any price changes as they see fit.
“We do have control over the price of electricity, however. We have decided to accept a £200,000 loss on electricity revenue for the present financial year. We have a commitment to ensure prices don’t go up, as they affect everybody. We’re holding prices down for this financial year. As for next year, I have no guarantee, as DfID have not given us a budget yet. Of course everyone thinks they’ll go up, simply because I insisted that they’d stay the same for this financial year! Even as things stand at the moment though, electricity prices here are amongst the highest in the world.
“The positive side of all this is that DfID are really pushing the wind turbines project. They’ve postponed it recently, but it remains in place. Although DfID are keen for us to keep electricity prices high, if we go ahead with the wind turbines, then we won’t have to put prices up.”
Linda said that the island is still in a privileged position when it comes to bearing the brunt of fluctuations in the world oil price. “Prices in the UK are 95p per litre, as against 80p here. Bear in mind that the fuel has to be shipped thousands of miles before it gets here, and you can see that people on St Helena are economically cushioned, even though they might think oil is getting expensive. In reality, we actually need another price rise.
“Take the cost of transporting the stuff here. Each voyage costs $125,000, before you’ve even paid for a drop of oil. There were five deliveries last year, so that means that, before you’ve consumed any petrol, you’ve already paid out shipping costs of $600,000.” When asked about the island’s year-on-year consumption of oil, Linda said that this had remained quite static, due to the fact that so many people have left. This means that, even with the recently increased importation of cars from UK, demand had remained constant because, quite simply, there are fewer drivers here than there were four or five years ago.
Overall, Linda feels that the price increases are inevitable. “At the end of the day it’s about getting a grasp of economic reality” she said. The deficit between the cost of oil on the world markets, and the local prices at the pumps has to be addressed, and the island’s books have to be balanced.