Report on rural petrol prices 'out of touch'

The 140-page OFT report follows three previous Monopoly and Mergers Commission investigations into the petrol market. The last MMC report, in 1990, also found no evidence of unfair trading and the OFT yesterday ruled out a fresh MMC investigation.

The report said in North West Scotland and the Inner and Outer Hebrides the economics of petrol supply mean that pump prices there ''are, and may always remain'' higher than elsewhere in the UK because stations tend to be less than a third of the size of the average UK petrol station in an area which accounts for some 13% of the UK geographically yet a mere 0.25% of the UK petrol market.

In November, 1996, pump prices in North West Scotland were 5.18p per litre higher than the UK average, a gap that widened by a further 10% by January of this year although since then BP has cut its prices by 4p a litre. Only the few BP-owned sites were obliged to implement the full 4p cut, however.

The report was met with anger and disappointment by representatives of Western Isles Council and Highland Council.

Highland Council Convener Peter Peacock, said: ''The OFT seems to be out of touch, not only with consumers but the oil companies, who accept action is necessary in vulnerable rural communities.

''Now we can only hope that the consultant engaged by the Scottish Office will come up with a more positive conclusion and give us clear guidance we are looking for on this crucially important issue. For our part, we will continue to offer the strongest support for our network of rural petrol station operators and campaign for a better deal for motorists in our communities.''

A spokesman for Western Isles Council said: ''We will have to look at the report in detail, but our initial reaction is one of extreme disappointment. High petrol prices are damaging to jobs and the economy and the conclusion that competition is working to the benefit of the islands is one which consumers would find difficult to recognise. We will continue to argue against high petrol prices.''

In the report, Fair Trading director general John Bridgeman concludes that the higher prices are a function of the extra cost of supply and the fact that there is less intense competition.

No evidence of cartels operating in the region was identified although the report acknowledged that the smaller number of suppliers, the low incentive to compete on price and the area's isolation, did make for a climate where cartels could develop.

Overall competition in the petrol market was strong and working to the benefit of consumers, said Mr Bridgeman.

Sales of low-price petrol by supermarkets had grown at the expense of traditional roadside sites, but he did not believe that lower prices indicated predatory behaviour.

He said: ''Supermarkets' pricing is the result of a low cost base and a long-term desire to compete with other supermarket rivals. Similarly, keen pricing by the oil companies cannot be regarded as unfair because it is unlikely to drive supermarkets out of the market.''

Mr Bridgeman said that over the past eight years pump prices had fallen by about a third in real terms and the supermarkets' share of the market had grown from 5% to around 23% since 1990.

He said: ''Competition promotes market efficiency, keen prices and consumer choice, but it inevitably results in winners and losers.''

There are fewer than 15,000 petrol outlets in the country, only 214 of which are in North West Scotland, Orkney, Shetland and the Western Isles.

The Petrol Retailers Association also criticised the report, saying the OFT had ''missed a big opportunity to help consumers get a better deal''.

PRA spokesman Christopher Macgowan added: ''I am horrified by the OFT's bland and cosy response which does not reflect the current position of the petrol retailing market.''

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