Friday 27 January 2023

Changes in the way of calculating fuel prices does not guarantee reductions

Variables such as maritime transport, internal freight and marketing margins of RECOPE and gas stations will no longer be calculated based on estimates, but on real costs

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27 January 2023 - At The Banks - BCCR

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QCOSTARICA – On Thursday, the most recent increase – the fifth consecutive of the year –  in fuel prices came into effect and set a historical record in the country. On Friday, the regulatory authority, the Autoridad Reguladora de Servicios Püblicos (Aresep), announced a change in the way of setting fuel prices.

The new methodology takes into account real costs and not estimates.

However, do not get too excited because said change would not mean a significant drop and on top of that, the new methodology will not be applied at least until July, that is we can expect increase requests by the Refinadora Costarricense de Petroleo (RECOPE) – the Costa Rican refinery that refines nothing – next Friday this month and the second Friday in June under the old formula, that are expected to bring us even more increases.

Thus, although we would like to see a positive step in reducing fuel prices, the reality is that the new methodology will not. In fact, the changes announced Friday were not even made in response to the current situation of constant increases in fuel prices.

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As explained by Daniel Fernández Sánchez, general director of the Aresep Regulation Development Center, the modifications approved for the calculation method are actually the result of a study process that took two years.

“It comes from years ago, it is not recent. A public hearing was held about a year ago, where the methodological proposal was presented. Subsequently, changes were made as a result of that public hearing, what the opponents stated was taken into consideration and then a new public hearing was held,” he commented.

What is the change?

The main change in the methodology is that, from now on, the real costs of variables such as the maritime transport of fuels, insurance, local freight, gas station sales profit and the margin (gross profit) by RECOPE.

The current methodology uses estimates.

“Before, with the previous methodology (currently in use) a variable was included that was called tariff lag, what that variable did was compare what RECOPE had been recognized in the price of fuel versus what it had actually spent, but that variable was diluted over time, between six and thirteen weeks, inclusive. With the new methodology, this variable is going to be between zero and two weeks, because we are going to use the costs at which RECOPE is really buying”, explained Fernández.

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For example, at present, each liter of super gasoline costs ¢951. According to data provided by Aresep, of that figure, RECOPE paid ¢540 per liter, to which must be added ¢273 for the tax on fuels, these two variables cannot be influenced, since Costa Rica is a country that does not refine and the tax is defined by legislation.

RECOPE does not import barrels of crude oil, but refined products, which are more expensive

“We are talking that of the ¢951, ¢813 correspond to the international price of the refined product and the tax. So, the margin that remains to try to find efficiencies in the methodology is around ¢138, which is where Recope’s margin is, which is about ¢47 per liter, the internal freight, about ¢12 per liter and the margin of gas stations, which is ¢57 more or less. As can be seen, the final price is made up of many variables, but the ones that have the most weight are the international price and the tax. Aresep cannot do anything about these because they are given prices.

“(…) The room for maneuver, from Aresep’s regulatory point of view, is not that great, but it is reduced to the minor components of the total price,” said the official.

Under this scenario, one of the few hopes for lowering the price of fuels is for RECOPE to be more efficient, to achieve reductions in its costs and that will reduce the marketing margin.

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“What Aresep is looking for is to make RECOPE’s marketing margin more efficient, we are looking for efficiencies in the refiner’s administration costs (…) Such as, for example, overpricing, overpayment of some incentives, duplication of management or functions, that is the kinds of things we have to look into,” the spokesperson concluded.

Aresep was emphatic that neither they nor RECOPE have the power to reduce the final price of gasoline at the pumps, as they depend on international variables and prices. In addition, it stressed that it should be taken into account that the country does not import barrels of crude oil, but refined products, which are more expensive.

Starting this Thursday, May 5, a liter of super gasoline costs ¢951, Plus 91 (regular) ¢927 per liter and diesel ¢904 per liter.

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