Market forces, higher NMI taxes driving fuel prices up

While external market forces are driving pump prices of petroleum products up, the taxation system in the Northern Marianas is putting more pressure on oil companies to sell fuel in their service stations at a higher cost.

At present, the CNMI government imposes 15 percent in excise tax for every gallon of fuel. This means that car owners may have actually been paying $0.3 more per gallon of regular and premium gas whenever they would fill up.

Although no comparative data from other Micronesian countries were immediately available, businessmen and commerce officials said this is way too high, thus aggravates the effects of high world prices of fuel.

Commonwealth Development Authority Board Chair John S. Tenorio mentioned two main factors the CNMI government should consider before any action is taken against oil companies on the series of increase in fuel costs.

Mr. Tenorio said the volume of petroleum products shipped by oil companies into the Northern Marianas is at least three times lower than the demand in Guam, pitching in to higher prices here than the neighboring island.

He pointed out that any item purchased in bigger volume is always cheaper. “I don’t think fuel prices in the CNMI should be higher than in Guam but we have to consider the volume of petroleum products shipped here.”

He added that oil firms are not likely to increase the volume of petroleum products brought to the islands since the principle of free enterprise is practiced here, where the demand dictates the supply.

Mr. Tenorio also said fuel taxes in the Northern Marianas is higher than anywhere in the Micronesian Region although he stressed that the discrepancy on fuel prices between Guam and the CNMI should not reach as much as 30 cents.

Consumers and the government should not only look at the purchasing price of imported items since there are other things that go with the importation of oil products from the Singapore regional market to the CNMI.

“That’s how business operates. The price you see on the counter reflects the cost of bringing the products in here. There are a lot of expenses businesses incur in importing goods,” he said in an interview.

Open Market

Business analysts said an open market like the Northern Marianas could never allow overpricing of goods. “If there were free competition, prices of commodities would reflect their true market value.”

Taxes and duties paid for the items, the cost of overhead, labor, utilities, among others, a fair mark-up for import commodities, must be considered by the consumers in identifying a fair mark-up for the goods.

If existing merchants were perceived to be overpricing their goods, or making a killing in profits, an open market would allow new players into the trading of the same goods.

Under an economy of free enterprise, these new players are most likely to offer the same goods priced lower than that of the overpricing merchant. To stay in competition, this merchant would of course push down his prices.

Merchants normally monitor and follow each other’s price levels to compete with one another.

The CNMI’s Consumer Protection Law states that the “public interest requires that consumers be protected from abuses in commerce which deprive them of the full value and benefit of their purchases of goods and services.”

The law, however, does not mention anything about overpricing, or passing on goods to consumers at an unacceptable price.

It only cited as illegal the increasing of the cost of merchandise “which has been previously been placed into the stream of commerce by having been offered to the public for sale at a specific price, indicated by the price tag or marking placed on the goods.”