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May 6th, 2010:

LCQ2: Offering petrol of lower octane numbers

lcq-2Last updated: May 6, 2010

Source: 7th Space

Following is a question by the Hon Starry Lee Wai-king and a reply by the Secretary for the Environment, Mr Edward Yau, at the Legislative Council meeting today (May 5): Question: It has been reported that a survey conducted by the Consumer Council (“CC”) has found that more than 60% of the car models on sale in Hong Kong may still attain optimal efficiency even if they use 95-octane petrol, which is lower in price. The survey outcome is more or less the same as those of a similar survey conducted by CC 10 years ago. Yet, at present oil companies do not follow the practice in the United States, the United Kingdom, France, Japan and Singapore of offering petrol of different octane numbers for vehicle owners to choose. Instead, they only sell the more costly 98-octane petrol, leaving some 200,000 vehicle owners in Hong Kong with no choice but to use it. It is estimated that the extra expenses on petrol paid by vehicle owners exceeded $2 billion in the past 10 years. There have been comments that the cause for the aforesaid existing situation is oligopoly in the motor vehicle fuel business. In this connection, will the Government inform this Council:

(a) what measures the Government had adopted in the past 10 years to encourage oil companies to introduce petrol of lower octane numbers to Hong Kong; whether it had assessed the impact of oil companies not introducing petrol of lower octane numbers on vehicle owners in Hong Kong; if an assessment had been conducted, of the outcome; (b) whether the authorities had, in the past five years, studied the experience in other places to explore how the technical difficulties in supplying petrol of different octane numbers at the same time could be solved; if they had not, whether such studies will be conducted; whether the authorities will consider setting the supply of petrol of lower octane numbers as one of the lease conditions when inviting tenders for petrol filling station sites; if they will, of the details; if not, the reasons for that; and (c) of the Government’s measures to increase the supply channels of fuel products and enhance competition in the industry, so as to safeguard the rights and interests of consumers? Reply: President, (a) & (b) The Air Pollution Control (Motor Vehicle Fuel) Regulation (Cap. 311L) specifies that the octane level of petrol for motor vehicles should not be lower than 95. According to the survey published by the Consumer Council in April 2010, among 550 models of petrol vehicles available in the Hong Kong market, 337 models (61.3%) could use 95-octane petrol and 213 models (38.7%) could use 98-octane petrol, as recommended by vehicle manufacturers.

Motorists should generally be mindful of the recommended octane level of petrol for their vehicles as advised by the manufacturers. A vehicle using petrol with an octane level lower than that recommended by its manufacturer may consume more fuel, lower engine performance and, as a result of premature ignition of petrol, reduce fuel efficiency, and render engine operation less than optimal. More pollutants, such as hydrocarbons, carbon monoxide and carbon dioxide, may be emitted, affecting air quality. Simply speaking, from the perspective of environmental protection, using petrol with an octane level that fits the engine performance of vehicles can help reduce air pollution.

The unleaded petrol first introduced into Hong Kong in April 1991 was of an octane level of 95.According to the petrol suppliers, some motorists were of the opinion that the power of vehicles run on unleaded petrol was slightly smaller than that run on leaded petrol.In response to consumers’ demand, suppliers introduced 98-octane unleaded petrol in October of the same year. Between October 1991 and March 1992, consumers could choose petrol with octane levels of 95 or 98 available in the market at the same time.Subsequently, 95-octane petrol was not as popular among motorists, and was withdrawn from the market. The consultancy report on the Auto-fuel Retail Market issued in 2006 had explored the suggestion of supplying petrol with different octane levels.Having considered the size of petrol fillings stations (PFS) as well as the scale of the Hong Kong market, the report did not recommend requiring retailers to simultaneously provide petrol of two different octane levels.

(c) Hong Kong currently imports oil products from different countries or regions. In 2009, over 40% of our oil products were imported from Singapore, while those from Mainland China and South Korea accounted for 25% and 16% respectively. Oil companies will consider their sources of import taking into account cost, price and other market factors. In a free market economy, retail price of petrol is determined by the market.Suppliers will take a view on the types of products to be provided having regard to customers’ demand and other market factors.

To enhance competition in the auto-fuel market, the Government has taken a series of measures, including – (i) removing the requirement for bidders of PFS sites to hold import licence and supply contract; (ii) re-tendering all existing PFS sites upon expiry of their leases, instead of renewing the leases to the existing operators; and (iii) since June 2003, the Government has tendered PFS sites in batches consisting of 2 to 5 sites per batch, depending on the land supply situation. The new tendering arrangement facilitates new entrants in acquiring a critical mass of PFS to achieve economy of scale for effective competition in the auto-fuel market. Since introduction of the new tendering arrangements, two new operators have obtained 24 out of the 37 PFS sites put up for tender and successfully entered the market.

The share of the three biggest operators in terms of the number of PFS has dropped from over 93% to 74%. These statistics show that the new tendering arrangements have effectively enhanced competition in the auto-fuel market.