SIS Seminar on Bulk Purchasing of Petroleum
SG's opening statement at SIS Seminar on Bulk Purchasing of Petroleum

5 Oct 2006 02:09:12

5 OCTOBER 2006
Suva, Fiji Islands


A warm welcome to participating Smaller Islands States Representative and all other participants.

The cost of petroleum products has high multiple impacts on everyday life. It is the one factor that affects all sectors, ultimately having an impact on the quality of life of the total population of island countries. Sustained high oil prices have placed immense pressures on subsidies, taxation, and the costs of state-owned companies, and the provision of essential services.

Fair and open competition in fuel supply is extremely rare in Forum Island Countries (FIC). Modern energy supply within each country is characterized by market power situations. This seminar will provide viable options for the achievement of affordable, accessible, available and sustainable energy supplies.

Recent research has established that the uncertainty generated from commodity price fluctuations hampers growth and is associated with increases in poverty. Inability to manage uncertainty weakens the ability of governments to maintain a conducive and stable environment for domestic business and to implement policies and programs to reduce poverty.

Some may consider the Pacific approaching an energy crisis situation. While it is relatively easy to implement measures to guard against supply disruptions, a crisis as a result of sustained high prices remains more difficult to address. Large portions of the Pacific still lack access to modern energy services, and the remainder find it increasingly more difficult to afford the limited access currently enjoyed.

The 2004 SIS Leaders Summit recognized the benefits of collective purchasing for petroleum products and requested the Secretariat to progress the initiative. A recent study indicates that many small-island states in the region are in critical position', due to:

- Exposure to Market Volatility: Petroleum prices have increased significantly over the last twenty-four months by over 62% (rom US$43 to $70/bbl). The market continues to display significant volatility. The SIS are vulnerable to this price volatility and lack access to appropriate mechanisms to manage exposure and effect of further unfavourable price movements;

- Market failure in the procurement and supply of petroleum products, with a lack of effective competition in the market for petroleum supplies. There is usually one market-dominant energy supplier in each country able to extract a degree of monopoly rent through fragmented and inefficient supply chains; and

- Regulatory failure, with little effective regulation of the market to moderate the impact of market dominance. This reflects a need for skilled and experienced regulators and an improvement in the regulatory framework.

The Secretariat posits a framework agreement approach for the SIS as a mechanism for public-public partnerships to implement solutions to address these key failures and ensure competitive prices are obtained for petroleum products.

The 2006 FEMM recognized that there were a wide range of areas where there is potential for regional co-operation and regional provision of services and directed the Secretariat to closer examination the option of an integrated regional advisory service to provide regulatory support in areas of Foreign Investment, Competition, Access and Price Regulation, and Consumer Protection and Fair Trading. This is an exercise in one specific sector.

This Seminar will present feasible alternatives to mitigate the size and exposure to further shocks' due to volatile commodity prices, while simultaneously addressing the needs of the Forum Principles of Accountability, and the Forum Principles on Regulation. Managing risks in highly volatile commodity markets remains one major challenge for development, especially where the costs of commodities affect the livelihood of the people, government's fiscal revenue, public expenditure, as well as the country's trade balance, foreign reserve and creditworthiness.

The work in this sector is a key component of the Pacific Islands Energy Policy and it is intended that this initiative will support CROP agencies that are charged with increasing the Renewable Energy composition of the Pacific energy mix.

Benefits will be achieved through regional and sub-regional collaboration, with a focus on the coordination of energy policy, energy regulation, energy security and the consolidation of the market through commercial procurement contracts. The alignment, and consistent application of regulatory policy and enforcement across the energy sector is a fundamental building block of this approach.