PRICES at the pumps, for the most part, are burning Jamaicans in the pocket as most seek to cope with the cost of filling up, which has gone up 37 per cent in the last 12 months. That means a car tank which took $7,000 to fill in early March last year is now costing more than $9,500 to fill at the moment. But what goes into these prices?

First, it’s the ex-refinery price. Petrojam says that price is determined by the prices for petroleum products in the US Gulf, the so-called Gulf Reference price. It means that, whatever the similar product is being sold for in the US Gulf, the same price applies in Jamaica, converted of course from US dollars to the Jamaican-dollar equivalent. This price is not influenced by things like transportation costs and the other elements that would normally go into determining the markup which businesses apply to products and services, to reach the final price.

Most of the rest of the price is made up of taxes and there are two taxes which are applied to the price of petroleum products — there is a specific consumption tax (SCT) and an ad valorem tax which is equivalent to ten per cent of the price, after the SCT is added to the ex-refinery price.

For example, Petrojam now sells a litre of E10-87 for a price of $182.43. However, its ex-refinery price is $128.07, meaning its selling price is $54.36 higher than its ex-refinery price. That $54.36 cents is all taxes. Unlike other taxes which the consumers pay when they buy a product, Petrojam pays this tax up front to the Government and then recovers it in its price.

Here’s how that tax is calculated:

Petrojam first takes its ex-refinery price for the fuel, in this case E10-87 of $128.0719, and adds the SCT to it. For E10-87 the SCT is $37.7761, which is added to the ex-refinery price. So $128.0719 + $37.7761 = $165.8480

To that price, an ad valorem tax of 10 per cent is added. Ten per cent of $165.8480 is $16.5848. Those two figures are then added: $165.8480 + $16.5848 = $187.4287, which becomes Petrojam’s final price for the product, in this case E10-87 gasoline. Together, both taxes add to $54.3609, which pushes up the price of E10-87 by 46.3 per cent. The tax margin is similar for E10-90 — taxes make up 41.7 per cent of the ex-refinery price of this grade of gasoline. For automotive diesel the taxes make up 41.2 per cent of what Petrojam sells the product for, and in the case of ultra-low sulphur diesel, the taxes account for 39.6 per cent of Petrojam’s final price.

Those Petrojam prices however are not what consumers pay at the pumps. Other markups are added which result in the final prices, which is why consumers are seeing price boards with prices above $200 per litre.

Dianne Parram, president of the Jamaica Gasolene Retailers Association, explained that the difference between Petrojam’s prices and that which consumers pay is made up mostly of two markups, one from the marketing company and the other from the individual retailers.

In the trade there are marketing companies such as Total, Rubis, Texaco, Fesco and so on, then there are retailers who operate the service stations under licence from the marketing companies.

“Petrojam sells directly to the marketing company. Petrojam’s price is what the marketing companies pay,” Parram told the Jamaica Observer.

She said even though the product is delivered directly to the retailers, the gas is really billed to the marketing companies which then bills the retailers for the product.

“So the price Petrojam announces each week is what it sells the product to the marketing company for. That marketing company then adds its markup to the price and sells the product to the retailer. The retailer then adds a further markup, which is their margin, and sells it to the consumer,” she explained to Sunday Finance.

However, she said there are some marketing companies which give the retailers a recommended retail price at which they should sell to consumers. She said if the retailers don’t follow the price suggested by the marketing companies, they are penalised, so for the most part the retailers tend to stick close to the recommended price.

“If they recommend you sell [petrol] for $1 and you the retailer sells it for $1.50, then next week they will increase their prices to take part of the $0.50 extra that you charged,” she continued, adding that it becomes a deterrent. She however says there are some marketing companies which do not make it a bother when retailers defy the recommended prices.

However, Parram was quick to point out that members of the JGRA are always told to properly calculate their operation costs and set prices which adequately cover them, and not to look at their competitors and what they are selling at.

But what accounts for price differentials? Why are prices in Cross Roads, St Andrew cheaper than Manor Park which is a few miles down the road? And also, why are prices in Clarendon Park, which is over 60 km away, cheaper than in New Kingston which is 5 km away from the refinery?

Parram said it’s all about whether the service station is operated by a retailer or directly by the marketing company. She explains that in Cross Roads the service stations tend to be operated by the marketing companies, as is the casae for the one in Clarendon Park.

“Those gas stations, and others operated directly by the marketing companies, have only one margin — just the marketing company markup and not the retailers’ markup. And that’s why we as retailers don’t want the marketing companies in the retail trade because it messes up the pricing. When the marketing companies operate service stations, the prices at which they sell their retailers are the same prices they sell at the pumps at the stations they operate. So who is going to come and buy from the retailer when the retailer has to put on a further markup?” she questioned.