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Dorine Chukowry réponds à la PNQ de Xavier-Luc Duval

La ministre du Commerce a répondu en début de la séance du 24 octobre 2023 à la Private Notice Question de Leader de l’Opposition.

For the sitting of Tuesday 24 October 2023

The Honourable Leader of the Opposition, (Charles Gaëtan Xavier-Luc Duval, GCSK, FCA, MP)

To ask the Honourable Minister of Commerce and Consumer Protection-

Whether, in regard to gasoline and diesel, she will-
(a) state if consideration will be given for reviewing the-

(i) respective price structures in order to reduce the retail prices thereof; and

(ii) procurement method resorted to for the purchase thereof amounting to a total of Rs 16 billion annually; and

(b) table copy of the purchase agreement with Mercantile and Maritime Group?

Mr Speaker, Sir,
I would like to thank the Honourable Leader of the Opposition for his Private Notice Question which gives me the opportunity to shed light on this very important subject because lately, there has been a lot of misunderstanding and confusion around this matter, either deliberately or not.

Therefore, this Private Notice Question is the occasion to set the records straight and put an end to all the speculations and unfounded arguments being ventilated.

Mr. Speaker Sir,
I would like to clarify that the contract for the supply of petroleum products is not for the amount of Rs 16 billion as stated in the question, but for a total premium of Rs 2.6 billion over 1 year for the supply of about 750,000 tonnes of products which comes to a premium of about Rs 3.00 per litre.

Mr Speaker, Sir,
The State Trading Corporation (STC) was incorporated in 1982 and started the importation of petroleum products in 1983. During its first year of operation in 1983, the STC’s portfolio was enlarged by taking over 25% of the petroleum products imports which, until then, had been fully controlled by the Local Oil Companies. In 1984, STC’s share of petroleum imports was increased to 50% in the light of the significant savings in foreign currency and the positive impact on the balance of trade and the relative success in the stabilization of petroleum products prices. In the following year, in 1985, the STC was entrusted with the full import of petroleum products and the Local Oil Companies confined to the role of Marketing/Distribution only.

The price structure for Mogas and Gasoil is defined under the Consumer Protection (Control of Price of Petroleum Products) Regulations 2011. It is updated following each exercise undertaken for the fixing of the prices of Mogas and Gasoil. The detailed price structure is available on the website of the STC.

The current price structure of Mogas and Gasoil comprises the following components:

• Excise duty and VAT
Mr Speaker, Sir,
Mogas and Gas Oil are subject to two taxes, namely excise duty and VAT. These taxes are collected by the Mauritius Revenue Authority (MRA) and remitted to the Consolidated Fund. The revenue collected from these taxes are used to finance both recurrent and capital expenditure of Government

Mr Speaker, Sir,
One of the objectives of this Government is to redirect resources towards the needy segment of the population. Each rupee collected from taxes is given back to the population. In fact, with the taxes collected, we are maintaining the welfare state by providing, amongst others, free education at all levels from primary to tertiary level and soon it will be extended to pre-primary level, free transport for our elderly and students, free health services, monthly pension to our elderly and other vulnerable group of the society such as widows, orphans and disabled persons.
The contributions charged to consumers in the price structure are collected to meet social obligations towards the population. These contributions existed in the past and we have maintained them.

• Contribution to the Road Development Authority
This contribution is used to part finance RDA’s administrative expenditure as well as to compensate public bus, both companies and individual, for increases in fuel price and salaries with a view to maintain the bus fares. Any increase in bus fares will have cascading impact on all sectors of the economy and may halt the increase in our economic growth trajectory. This contribution was introduced in September 1990.

I am further informed that the contributions to this item were increased on several occasions, namely in October 2004, January 2006, April 2006 and July 2006.

• Contribution to Rodrigues Transportation and Storage
This contribution is used to subsidise the costs involved in transporting, storing and distributing petroleum products, ration rice, flour, bagged cement and other products. The objective is to protect our brothers and sisters in Rodrigues so that the retail prices in Rodrigues are kept at par with those prevailing in Mauritius. I am made to understand that this contribution was introduced in September 2000.

• Contribution to the construction of storage facilities for petroleum products
This contribution is for the construction of warehousing facilities for the storage of petroleum products. This item was introduced in November 2015. The rate is 65 cents per litre for Mogas and 50 cents per litre for Gas Oil. From the funds collected, Rs 75 million have been invested in the construction of a storage facility, namely Mer Rouge Oil Storage Terminal (MOST) which has a storage capacity of 25,000 Metric Tons, out of which 15,000 Metric Tons is meant for Mogas and 10,000 Metric Tons for Gas Oil. This has increased the buffer stock of the country by 30 days for Mogas and 16 days for Gas Oil.
In July 2021, an amount of Rs 800 million was transferred to the Price Stabilization Account to avoid an increase in the retail prices of Mogas and Gas Oil.
As at 30 June 2023, the balance of this contribution stood at Rs 790 million.

Mr Speaker, Sir,
The war between Russia and Ukraine and now the disastrous situation which is developing in the Middle East concerning the war between Israel and Palestine have brought to light the great risks of disruption of supply chains, including the movement of tankers of petroleum products. This clearly indicates that anything can happen at any time with serious impact on prices as well as movement of products. This is a clear indication that the country should get ready to face such a situation if it arises.
Given that Mauritius is a small island and the country relies entirely on importation for the procurement of petroleum products, this fund is earmarked for the construction of additional storage facilities for Petroleum Products to ensure security of supply.
• Contribution to subsidy on LPG, Flour and Rice
This contribution is used to finance the subsidy for the purchase of LPG, Flour and Rice by consumers. This item was introduced in April 2007.
Our population is still benefiting from the subsidized price:
• on a 12 kg cylinder of cooking gas at the price Rs 240 instead of the market price of Rs 499, i.e 52 percent lower than the market price;
• on rice, at the price of Rs 10.80 per kg instead of the market price of Rs 17.46 per kg, i.e 38 percent lower than the market price; and
• on flour, at the price of Rs 2.18 per half kg to bakeries and Rs 4.85 per half kg to non-bakeries instead of the market price of Rs 15.87 per half kg.

Mr. Speaker, Sir,
It is noted that even with this contribution which totals to around Rs 3.7 billion, Government spends not less than Rs 4.1 billion for all these subsidies.

Mr Speaker, Sir,
The price structure also provides for retail and wholesale margins to cover the operating costs for the distribution and retail of petroleum products by oil companies and petrol stations around the island.

The revenue derived from each contribution is collected by the STC and remitted to the relevant authorities.

Mr Speaker, Sir,
All of the components of the price structure have been introduced in order to maintain affordable prices for essential commodities so that they are accessible particularly to people from the lowest income group.

I am further made to understand that collection of taxes and other contributions from the sale of petroleum products is a general practice in most countries. It is actually a progressive collection of funds wherein those who use more are required to contribute more. It is a dynamic item and can be subject to review with time depending on prevailing economic and social conditions. It would be, therefore, presumptuous, at this stage, to take a stand as to whether we will review the current price structure.
Mr Speaker, Sir,
It might be popular to state that removal of items would bring down the price of petroleum products, but we need to ask members of the other side of the House why they did not do it in the past and also how we would continue financing the welfare state without these contributions, unless the members of the Opposition are suggesting the removal of the financing of subsidy for the vulnerable segment of the population. This is not the policy of this Government, which will ensure that, at all times, the most vulnerable are cared for.

Mr Speaker, Sir,
With regard to part (ii) of the question, I am informed that The State Trading Corporation (STC) launched on 5 May 2023 an Open International Bid on the Government’s E-procurement system for the supply of four grades of White Oil, namely Mogas, Gasoil, Jet A1 and Marine Gas Oil for the period 01 August 2023 to 31 July 2024.

At the time of opening, seven bids were received and an evaluation exercise was carried out to determine the lowest responsive bidder. Eventually, this tender exercise was cancelled in view of a better offer received from Mercantile and Maritime Investment Pte Ltd (MM) which included a more competitive premium price for all the four categories of products and other benefits not proposed by the lowest responsive offer received in the tender exercise.

I wish to highlight the fact that the STC is exempt from the provisions of the Public Procurement Act since 2008 with respect to the purchase of goods for resale, including services incidental to the purchase or distribution of such goods. The STC may, thus, engage in direct purchase and/or negotiations with a seller, for goods it purchases for resale, including White Oil.

Mr Speaker, Sir,
The benefits that were to be reaped from the offer made by Mercantile and Maritime Investment Pte Ltd included:
• A lower premium that would enable savings of approximately MUR 460 million over the term of the one-year contract.
• An improved cash flow for the STC based on the credit period of 60 days from the discharge date, allowing it to benefit in terms of interest costs payable to banks.
• A performance bond value of USD 15 Million to be placed in the Bank Account of the STC to be called upon in case of non-performance in favour of the STC.
• Possibility of making payments to Mercantile and Maritime Investment Pte Ltd in Mauritian rupees instead of US dollars. Due to the negative impact of COVID-19 on the Mauritian Foreign Exchange (FOREX) market, the STC was facing difficulties in obtaining the required amount of US currency to pay its suppliers. Therefore, such an arrangement with Mercantile and Maritime Investment Pte Ltd would significantly reduce the USD requirements of the STC, which would, in turn, lower the estimated interest cost of MUR 250 million payable to commercial banks.
• US currency being made available for purchase by traders on the local market as STC, being one of the major USD buyers on the local market, would not require same for payment to Mercantile and Maritime Investment Pte Ltd.

Mr Speaker, Sir,
In view of these benefits, the STC cancelled the tender exercise as per Clause 21 of its Bidding document, which, inter alia, reads as follows:
“That the STC reserves the right without thereby incurring any liability to bidders:
To accept or reject any bid and to annul the bidding process and reject all bids at any time prior to contract award”
Following Board approval obtained on 29 June 2023, the STC proceeded with the allocation of a contract to Mercantile and Maritime Investment Pte Ltd.

Mr Speaker, Sir,
As regards the due diligence exercise, I am informed by the STC that it had carried out a due diligence exercise on the company and obtained its Certificate of Good Standing, Certificate of Incorporation and latest audited financial statements.

The financial soundness of Mercantile & Maritime Investments Pte. Ltd (Incorporated & Domicile in Singapore) was assessed based on the Audited Financial Statement for period ending 31 December 2021. The financial statements have been audited by UHY Lee Seng Chan & Co, a Singaporean audit firm with more than 50 years’ experience in auditing and other advisory services.

In addition, a compliance check was carried out to assess the potential financial, regulatory and reputational risk of the company.

Mr Speaker, Sir,
I am also informed that as per Clause 19 of the present contract with Mercantile & Maritime Investments Pte. Ltd, each shipment needs to be accompanied, as a mandatory condition, by a certificate of origin of the petroleum product to assess that same has not been procured in no way from a country under sanction by the United Nations, the European Union, the United States of America, among others. This certificate has to be produced prior to arrival of the tanker.

Mr Speaker, Sir,
I am also informed by the STC that Mercantile and Maritime Investment Pte Ltd is an experienced energy market operator incorporated in Singapore, providing international clients with a full range of services across the oil and gas value chain. It is specialized in the trading of physical oil and gas products, shipping & logistics, midstream. The company has traded over 400 million barrels of crude and over 300 million barrels of oil products.

Mr Speaker, Sir,
As regards the last part of the question, I wish to inform the House that the contract is a live one and the Leader of the Opposition would concur that such major contracts are governed by a standard confidentiality clause.
In order to render same public, we would need to have the concurrence of all parties involved under the contract and unfortunately, we have not had time to consult Mercantile and Maritime Investment Pte Ltd on the matter.

The STC will discuss the matter with Mercantile and Maritime Investment Pte Ltd and if it is agreeable, I will gladly table a copy of the contract.

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