Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 220 - 238)

WEDNESDAY 1 NOVEMBER 2000

MR R HOLLOWAY, MR P BARLOW, MR N BROCKLEHURST AND MR G JENKINS

  220. It does not fill you up.
  (Mr Brocklehurst) It just splashes in the bottom. That is all the retailers can afford to stock now.

  221. What kind of stocks are we talking about if you were to run on full tanks? In terms of excise duty, if the point at which that is levied were changed would that make any difference to you?
  (Mr Brocklehurst) It would be of great assistance. It is typical for the retailer to get little or no credit at all from the oil company whether for duty or for the product; he has to find the money straight away. A lot of the sales are going out on credit cards and there is a money loop where it takes up to 21 days for us to recoup that money. Cash sales are obviously quicker. Yes, if there were an incentive for the retailer to stock more he would certainly be pleased to do so. He does not like running on the bottom of the tank. He feels very vulnerable in times of crisis.
  (Mr Holloway) In terms of the industry, as we went into the September crisis the industry beyond the distribution depots was broadly holding three to four days' stock. That was what caused the problem when the panic buying began. One of the disappointments I have in the work which has been done in the intervening period is that not enough attention has been given to increasing the stock level. A previous Government inquiry into our industry suggested that the tax point where duty is paid ought to be extended to the petrol retailer. At the moment effectively what is happening is that the retailer is paying cash on delivery for the fuel, then having to wait up to 21 days for part of that cost to come back through credit card trading and indeed the oil companies which supply are enjoying extensive credit themselves. None of that has been used as an initiative to increase stocks which could offset the worst effects of another crisis.

Mr Butterfill

  222. I assume that your members would not include the operators of motorway service areas then.
  (Mr Holloway) They do include the operators of motorway service areas.

  223. They are required, or I think they were, to maintain a strategic reserve within MSAs. Is that not correct?
  (Mr Holloway) Yes, that is correct.

  224. How large is that reserve?
  (Mr Holloway) The average is actually seven days; seven days' stock. But of course many of the motorway service areas are not able to hold a strategic stock because of the growth of their business. Therefore part of that now is a tradeoff with the supplier in terms of fuel availability. There is a balance which has occurred in the industry as volumes have risen.

  225. But there is a statutory obligation on them.
  (Mr Holloway) There was a relaxation of the statutory obligation overall but there is a requirement for motorway service operators to hold a minimum stock.

Chairman

  226. What proportion of your tanks are filled when the tanker comes along to deliver? You mentioned it is sloshing around in the bottom but how near the bottom and what is the space between that and the top in proportionate terms?
  (Mr Brocklehurst) To manage a business efficiently, if you are only thinking about capital involved, obviously the system normally worked by oil companies is that we know in advance when our tankers are coming. We either book them or they are on a planned system where we have so many per week. The ideal situation is to run on the minimum under normal trading terms, no crises of course. That is a policy which you will find pretty well all the retailers in the country will be adopting; prior to the September problems anyway. There is no incentive for them to do any other.

  227. Surely what we have is a situation where you get more deliveries than you need in the sense that they keep coming along, half filling you up and we have more tankers on the road than we require, they are making more journeys, they are creating more pollution, they are using more fuel. Surely there has to be a more sensible way. I am not putting the blame at your door but what is coming across to me is what is the point of just running along with a spoonful when they could come with a bucket once a week?
  (Mr Brocklehurst) We have to take full loads and the oil companies would require us to take their full vehicle to maximise their running costs. A typical road tanker is 36,500 litres, to give you some idea of the proportion. Our tanks can take 160,000 litres. We are probably a typical site, a newly developed typical site. We have three tankers a week, sometimes four tankers a week. We would be looking to have just enough to survive to the next delivery.

  228. I can understand why you do that for good sensible business reasons but I am just wondering whether or not we have got it wrong in the sense that we tax you and we require payments to be made by you or the oil companies require payments to be made by you so you keep lower levels of stocks than you are capable of doing. I assume that when the stations are constructed there is a normal size of tank which a station has.
  (Mr Brocklehurst) Yes. The industry tends to look to have a week's normal stock underground. When you are building new stations you would look to have what you think the site will do in storage underground for seven days.

  229. In the certain knowledge that you are never going to need it?
  (Mr Brocklehurst) We should like to have it but it is the cost. I have already gone through that. That is the only reason why we do not have it. It gives you a comfort feeling if you have stock underground. Weather conditions are going into winter now and we cannot help vehicles being snowbound, drivers breaking down or whatever but we are forced to run absolutely on the bottom.
  (Mr Holloway) There is of course another issue here. It is that in some parts of the UK where fuel is delivered to a petrol filling station it is all too often the case that the retailer is actually paying excise duty for a product they do not receive. If that sounds an Irish statement, I shall expand on it.

  230. No, I understand that. The whisky distillers have exactly the same. They call it the angel tax but they have a rather longer period in which to pay.
  (Mr Holloway) It is fun living near a whisky distillery rather than an oil one. The fact is that the fuel when supplied, if in fact it is above the temperature at which oil products should be measured, it is actually likely to subtract and therefore be a loss to the individual retailer.

  231. Is it supposed to be delivered at 15°C?
  (Mr Holloway) Correct.

  232. How frequently does that discrepancy occur? Are you really suffering severe losses because they are delivering at too high a temperature?
  (Mr Barlow) The situation is that there is no specified delivery temperature. The oil companies pay duty on fuel at 15°C. If they actually sell it to the retailer at higher than 15°C then they make an additional profit, they pocket duty which they charge the retailers but they do not have to pay to Customs and Excise.

  233. You do not have an ability to measure the temperature and say you are not taking that because the temperature is too high.
  (Mr Brocklehurst) No.
  (Mr Barlow) Petrol retailers are very much limited by their conditions of contract. The terms and conditions of contract say that the oil company will be responsible for the measurement of the volume of fuel. It does so happen that the Customs and Excise legislation, the Hydrocarbon Oils Regulations 1973 as amended, required that at a duty point terminal—a duty point terminal would be for example a refinery terminal—where the meters which are used to measure for Customs and Excise duty purposes are the same meters which are used to measure into the tanker, then the delivery note which goes with the tanker should be in standard litres, that is to say in litres at 15°C. They are not in standard litres. Oil companies are in breach of Regulation 12. This means that whereas the petrol retailers would, if the oil companies complied with this legislation, actually have standard litres metered, they do not have standard litres metered, they have the meter reading at whatever temperature the fuel happens to be at that time.

  234. Does it also mean that your customers may not be getting fair measure if they are buying on a hot day?
  (Mr Barlow) Generally speaking one gets a situation of course where if we look at average temperatures round the country in Scotland the average temperature is something like 8°C ambient, down the North West it may be 9°C, down the South Coast it would be 10.5°C. If you are delivered warm fuel in Scotland then of course it can contract more rapidly and certainly if the volume of the throughput of the site is low, then the petrol retailer is losing a lot of money in terms of contraction of fuel volumes.

Mr Laxton

  235. From your Association's position are you happy with the crisis management which was put in place in September? In terms of what may happen from now onwards or may not happen are you confident that a better situation has been organised in case of any other fuel protests in the future?
  (Mr Holloway) If we go back to the September crisis, it was very evident that there was no management of the whole event. Sadly matters ran away with the industry and with Government departments. We had gone through several days of the crisis before it was even acknowledged that we had a major problem. The concerns I had with regard to the fuel industry were the ease with which demonstrators or protesters found a capability to close down the delivery of road transport fuels within just three days. That in actual fact is something the fuel industry needs to address its mind to. In terms of the task force work which has been undertaken since, there has clearly been a great deal of consultation with the oil companies with regard to the memorandum of understanding which was not signed by all participants within the discussions. There are loopholes which have not been addressed; I referred to one of them already and that is that it was not the availability of oil at the transport depots which caused the problem in September, it was the fact that there was not sufficient fuel beyond the gates of the transport depots. If sufficient attention is given to that now, then hopefully the worst effects of whatever comes will be offset.

Mr Baldry

  236. There are two Orders in Council which we have yet to debate which were introduced by the Government and actual action the Government took during the crisis, one of which was to designate particular petrol stations as stations which would be in first receipt of fuel if fuel were available. In your view is such a scheme operable and manageable? If such a scheme were ever needed to be introduced in the future, how do you see it working in terms of knowing who is a GP on call or who is an ancillary staff worker? Does a police officer get some? Some of us are just about old enough to remember the Suez crisis. My father was a doctor and I can just about remember having coupons to go and get petrol, but that has not happened since then. How would you actually see that operating and do you think the scheme the Government introduced in that Order in Council is actually operable?
  (Mr Holloway) One point: coupons were in fact issued in 1979 when we had the fuel crisis then. They were never used but they were issued. In terms of the identification of essential personnel, that is one of the biggest nightmares faced by a petrol retailer, if we are talking about fuel being collected from a normal forecourt. That was not very adequately handled in September because it was very easy to produce documentation which said "I am an essential user". I do hope that in fact steps have been taken to narrow down essential users and indeed to provide an adequate form of identification. The problem is that a petrol forecourt open for normal business will not be so in the circumstances you described. In other words, members of the public will have to know that the person being served to the denial of themselves has identification to prove it. In terms of identification of the key locations to receive it, there are two levels of that. One is clearly those essential services, ambulance, police etcetera who need to have the fuel and they number very few locations over the whole of the UK. If you wish to have the normal network of filling stations in the UK with a strategic stock, then there are analysts within the industry who might have been used to provide a geographical spread with the knowledge and experience they have which I do not believe exists within the individual oil companies or DTI. I know for a fact that evidence, that help, has not been called for.

  237. Hopefully there will not be similar disruption in the future but if there were to be similar disruption in the future, as far as you are aware, has any further work been done either to issue identification to key workers or to cooperate with you in identifying a network of strategic locations where key workers can obtain fuel?
  (Mr Holloway) No work has been done with petrol retailers direct on the latter subject. There may well have been consultation with the oil companies. I come back to commercial interests etcetera. There is an independent company which advises DTI on a lot of the work they do within the industry and they have not been consulted despite suggestions that they should be. That led to problems in the first crisis when in actual fact many of the locations on the list had been closed as forecourts many years before. That took a great deal of time in cleansing the list. There is need for that.

Chairman

  238. What company do the DTI normally consult?
  (Mr Holloway) The company is called Catalist—C-A-T-A-L-I-S-T—and they are based in Bristol. They are the only oil industry analysts at a retail level because there is no register of filling stations in the UK.
  (Mr Jenkins) I should like to add one point which is related to the last question and it is due to the high cost of fuel in the UK. Over the last decade commercial stocks of Derv and petrol have probably halved. High cost is not the only reason why these have halved but this of course in any crisis really exacerbates the situation.

  Chairman: Thank you very much, gentlemen. Thank you for your help this morning. We shall get back to you on any points we need to.





 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 15 March 2001