In Petroleum Market, Gov’t Takes an Active Role

As global oil prices have plummeted over the past year, the price of gas at the pump in Cambodia has seen a much slower fall.

While the government says it can’t prove that petroleum retailers have formed a cartel, it has repeatedly taken steps to pressure them to lower prices in line with shifting global value. 

This week, the seven major gas companies operating in the country again agreed to lower their prices, but only after a request from the Commerce Ministry. Earlier this year, the ministry said it would meet with gas retailers every 10 days to ensure their prices remained in line with global trends.

And now the ministry says it is drafting a law on competition that will give it the power to investigate cases in which firms seem to be manipulating the market at the expense of consumers, according to Secretary of State Mao Thora.

“So far, we don’t have any evidence to accuse fuel companies of creating a cartel because we need to have an official committee who goes down to inspect them,” Mr. Thora said.

“That’s why we plan to create a committee that will be led by the Commerce Ministry after the law on competition that is being drafted is put into place,” he said.

“Now we dare not inspect them [gas retailers] because we don’t have the law and the legally appointed committee,” he added. “If we go to check them now, our heads would be broken by them.”

Until the government has the legal authority to take action, Mr. Thora said the Commerce Ministry would continue its efforts to protect consumers.

“If the government sees that there is a problem related to rice, food or oil happening in the market that could push our society into turmoil, it has to go into the market to help find a solution,” he said.

The petroleum market, however, is unique in the amount of interference it receives from the government.

Economist Srey Chanthy, who said gas retailers have been “very slow” to lower their prices in line with the global trend, said the Commerce Ministry’s involvement was likely due to how crucial fuel is to both consumers and industry in general.

“When the market does not function freely and efficiently, the government has to intervene and regulate,” Mr. Chanthy said.

“I think fuel suppliers in Cambodia don’t seem to operate according to free-market principles,” he added. “The government should intervene mainly in the fuel market because it is so important and it is the fuel of the economy as a whole.”

Timely intervention by the government to stimulate competition has been prudent, according to Hiroshi Suzuki, chief economist at the Business Research Institute for Cambodia.

“I am of the opinion that the role of government is very important for the oil sector because the stable supply and stable price are very necessary for the healthy economic management,” Mr. Su­zuki said in an email.

However, John Humphreys, executive director of the Professional Research Institute for Management and Economics, said that efforts by the government to intervene in the petroleum market would prove futile.

“If the government wants to improve competition, they cannot do that by micro-managing prices. That will actually decrease competition as businesses can ignore their competitors and just follow the lead of the government,” Mr. Humphreys said.

“Instead, the best way to increase competition is for the government to reduce barriers to entry, so that it is always easy for a new business to start in Cambodia,” he added.

“I don’t know what is in the mind of politicians, but their reason could simply be political. Introducing new rules and regulations are often designed to make politicians look busy and look good, but they generally do not fix the problem.”

Jayant Menon, lead economist at the Asian Development Bank’s regional integration office, agreed that reducing barriers to entry was the most likely long-term solution to increasing competition.

However, in the meantime, he said government intervention was not only justified, but probably necessary.

“I think the point here to bear in mind is that if there is a small number of operators in retail petroleum that are forming some kind of price-setting arrangement…then there might be a role for government to come in and say this is not competitive behavior,” he said.

“If they are clearly abusing market power, which appears to be the case, the government has almost a duty to make sure consumers are not at a disadvantage—it is a social responsibility.”

(Additional reporting by Anthony Jensen and Colin Meyn)

[email protected]

© 2015, All rights reserved.