Investigation into the price charged for liquid fuel in the Isle of Man

The Office of Fair Trading has today released the findings of its in depth investigation into liquid fuel prices. The investigation involved a thorough and detailed examination of the structure of Island’s liquid fuels market tracing the supply of fuel from its purchase at the refinery right through to the final price paid by the Island’s consumers for both road fuel and home heating oil.

The Island’s distributors and the retailers who were subject to the investigation complied fully with the investigation supplying a significant amount of data, including accounts, analysis of which has resulted in the production of an approximately 100 page detailed investigation report. Because of the complexity of the full report the Board of the Office of Fair Trading considered that it would aid understanding of the findings of the investigation if in addition to the detailed analysis, a ‘laymans guide’ was also produced summarising the main findings and recommendations.

The report concluded that whilst the prices charged for liquid fuels in the Island were higher than those charged for example in the United Kingdom, there were various factors such as the difference in the scale and scope of the United Kingdom and Isle of Man liquid fuel markets together with the additional costs and overheads incurred in supplying bulk fuel to an Island community that contributed to the price differential. The investigation also found that in comparison to more similar markets such as Eire and the Channel Islands the price of fuel on the Island (adjusted for indirect taxation such as Customs Duties and VAT) was either comparable or in fact lower.

There was also a need to address public concerns and perception that the prices charged in the Island were “a rip off” and to do this the investigation examined in detail the profitability of the fuel wholesalers and retail businesses on the Island. In this area the findings of the investigation were that in general the level of profits made by the companies did not appear to be excessive and had declined since the last study.

Perhaps not unexpectedly the investigation found that by far the biggest cause of price changes continues to be changes in the cost of wholesale fuel in what is an extremely volatile market. In examining public concern that prices go up quickly and come down slowly, the investigation found evidence that the Island’s distributors and retailers monitor future purchase costs and limit the impact on consumers by absorbing or retaining some of the changes in wholesale price and introducing staged price increases or decreases rather than having to introduce the frequent dramatic price changes that the volatility in the market price would require.

In summary the investigation found:-

• Prices charged for liquid fuels on the Island were higher than those charged in the United Kingdom
• The higher prices resulted from a variety of factors such as the difference in scale and scope of the Island market compared to the United Kingdom together with the additional costs and overheads incurred in supplying bulk fuel to an Island community
• In general the profits made by the fuel wholesalers and retailers on the Island did not appear to be excessive
• The profits of these companies had declined since the last investigation in 2006
• Fluctuating prices of fuel to the consumer were mainly as a result of changes in the wholesale prices in an extremely volatile market
• Adjusted for indirect taxation differences, prices charged for liquid fuels were comparable or lower than similar markets to the Isle of Man