Examination of Witnesses (Questions 220
WEDNESDAY 1 NOVEMBER 2000
MR R HOLLOWAY,
MR P BARLOW,
MR N BROCKLEHURST
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.
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
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
(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.
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
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
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
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 terminala duty point terminal
would be for example a refinery terminalwhere 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
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.
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
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
238. What company do the DTI normally consult?
(Mr Holloway) The company is called CatalistC-A-T-A-L-I-S-Tand
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.