ICCC Price Monitoring

Price and industry regulation functions of the ICCC is performed by the Prices and Regulatory Affairs Division.

Ice cream (locally produced and imported) is a declared monitored good under Section 32A of the Prices Regulation Act. This declaration was made after authorization was granted for Laga Industries Limited to acquire the ice cream business from Tanubada Dairy Products Limited in 2003.

Laga Industries Ltd has been providing to the Commission their price list on a monthly basis since their acquisition of Tanubada Dairy Products Limited for the purposes of monitoring ice cream prices, and under the provisions of the Act the Commission monitors the prices of ice cream products on a monthly basis. Laga Industries Ltd is not required to obtain prior approval from the Commission for any price changes. However, the Commission will monitor these price changes by comparing them against other relevant prices in the economy.

Should the Commission find that ice cream prices are rising at higher rates than other relevant prices in the economy, the Commission can recommend to the Minister for Finance and Treasury that ice cream be declared for price control purposes, whereupon Laga Industries Ltd will be required to obtain prior approval from the Commission for any price changes.

This monitoring process will ensure that Laga Industries Ltd does not abuse or take advantage of its monopoly status in the domestic market.

Flour is a declared good under Section 10 of the Prices Regulation Act (Chapter 320) for price control purposes. Under the new legislative changes relating to the introduction of the ICCC Act and the provisions of Section 25A (6) of the Prices Regulation Act as amended, the Commission has undertaken a major review of the pricing regulatory arrangements applying to flour and flour in its various variant forms and packages. This review inter alia considers whether continuing price control or regulation of flour prices is required, and if so, the form of regulation that should apply to flour prices.

The Flour Industry Pricing Review commenced with the release of the Issues Paper on 7 June 2004. More than 50 copies of the Issues Paper were widely distributed to industry stakeholders and the general public throughout the country. And from these there were six (6) submissions made to the Issues Paper.

The submissions to the Issues Paper formed the basis for the Draft Report, which was released on 28 February 2005.

The Draft Report outlined the Commission’s draft determinations. The Commission determined in the Draft Report that regulation of flour prices should continue and with the exception of the wholesale and retail margins, the form of price regulation to be applied was to be varied from the price control arrangements that existed at the time of the review.

A total of 21 copies of the Draft Report were distributed to industry stakeholders, relevant government agencies and the general public. From these a total of five (5) submissions were received.

With a few minor differences in opinion on certain aspects of the Draft Report, there was general agreement and support for the price monitoring approach for flour prices as proposed by the Commission in the Draft Report.

Submissions to the Draft Report formed the basis of the Final Report. The Final Report contained the Commission’s final determinations and was released on 18 July 2005.

Briefly, the Commission's final determinations in the Final Report of the Flour Industry Pricing Review under the provisions of Section 25C(3) of the Prices Regulation Act are as follows:

Price regulation of the prices of flour products will continue.
With the exception of the wholesale and retail margins, the form of price regulation to be applied is to be varied from the price control currently operating.
The Commission will recommend to the Minister for Finance and Treasury that an order be gazetted that specifies the form of price regulation to be adopted.
The form of price regulation to be applied will be: price monitoring of the ex factory price of flour products under the provisions of Section 32A of the Act; and price monitoring of the coastal freight charges for main port delivery of flour products under the provisions of Section 32A of the Act.
The Commission will amend the General Prices (Amendment No. 17) Order 2003 to set a cap on the wholesale and retail margins of flour products, with the declared price per kilogram margins for various flour products and package sizes to be as specified in Table 5.4 and to remain at this level for a period of five years from 1 st July 2005 or until such time as reviewed by the Commission.
The declaration of prices and price regulatory arrangements will apply for a five year period from 1 st July 2005 to 30 th June 2010.
The initial ex factory prices to be used in the price monitoring process will be the ex factory price equivalent of the gazetted price for flour products existing as at 1 st July 2005 (that is excluding all coastal freight charges).

Rice

Rice (brown and white) is a declared good under Section 10 of the Prices Regulation Act (Chapter 320) for price control purposes. Under the new legislative changes relating to the introduction of the ICCC Act and the provisions of Section 25A (6) of the Prices Regulation Act as amended, the Commission has undertaken a major review of the pricing regulatory arrangements applying to rice products in PNG. This review inter alia considers whether the present price control arrangements for rice should continue to operate in their present form or be varied, or whether the price control arrangements should be terminated.

The Commission commenced the pricing review of the Rice Industry by releasing the Issues Paper on 17 January 2005. Copies of the Issues Paper were distributed to major stakeholders of the industry, relevant Government agencies and the general public throughout the country. A total of 50 copies of the Issues Paper were sent out from the Commission. And from these there were of seven (7) submissions made to the Issues Paper.

From the submissions received, a Draft Report was prepared incorporating views from these submissions. The Draft Report contains the Commission’s draft determinations was released on 17 October 2005. The Commission's draft determinations as outlined in the Draft Report are as follows:

Regulation of the prices of rice products will continue, with this regulation to apply to the price-sensitive segment of the domestic rice market, namely the Roots Rice products.
With the exception of the wholesale and retail margins, the form of price regulation to be applied is to be varied from the price control currently operating.
Unless varied by its Final Determinations, the Commission will Gazette an order that specifies the form of price regulation to be adopted.
The form of price regulation to be applied will be: price monitoring of the ex factory or factory gate price of Roots Rice products under the provisions of Section 32A of the Act; price monitoring of the coastal and road freight charges for delivery of all Trukai supplied rice products from its Lae facility under the provisions of Section 32A of the Act; and price control of the wholesale and retail margins of Roots Rice products under the provisions of Section 10 of the Act, with the declared price per kilogram margin for various rice products and package sizes to be as specified in Table 5.5 and to be fixed under the provisions of Section 21 of the Act.
The declaration of prices and price regulatory arrangements will apply for a five year period from a date to be determined but no later than 1 st January 2006 until 31 st December 2010.

The Commission has invited all stakeholders to make further submissions to the Draft Report. These submissions will be consolidated and will form the basis of the Final Report. The deadline for submissions to the Draft Report is 18 November 2005.

After the receipt of submissions on the Draft Report, the Final Report will be released taking into consideration comments made in submissions to the Draft Report. The Final Report will contain the Commission’s final determinations and price directions to apply for a period of five (5) years. The Final Report of the Rice Industry Pricing Review is scheduled for release on 16 December 2005.

Fish (canned mackerel & tuna), Meat (canned corned beef) and Poultry (except duck, geese & turkey)

These goods (fish, meat and poultry) are all declared goods under Section 10 of the Prices Regulation Act (Chapter 320) for price control purposes. Manufactures of these goods are required under the Act to seek the Commission's approval before any price change.

The Commission envisages conducting pricing reviews (similar to the flour and rice pricing reviews) into these goods in the foreseeable future, most likely toward the end of 2005 or early 2006, starting with fish, meat and then poultry. These reviews will among other things consider whether continuing price control or regulation for each of these goods is needed, and if so, the form of regulation that should apply to their respective prices.

Others [Batteries (torch & radio); Butter & Margarine; Coffee beans (ground & instant); Milk (powdered & concentrated); Soap (laundry, cakes & powdered); Sugar (brown & white); Tea]

These goods are also declared goods under Section 10 of the Prices Regulation Act (Chapter 320) for price control purposes. Manufactures of these goods are required under the Act to seek the Commission's approval before any price change.The Commission envisages conducting pricing reviews (similar to the flour and rice pricing reviews) into these goods in the foreseeable future, most likely toward the end of 2005 or early 2006, starting with fish, meat and then poultry.

This list of goods for price control purposes was drawn up in the 1970s, and so the nature and circumstances of the PNG market today may be such that there may not be a need to regulate the prices of some of these goods. Competition and contestability in the market for some of these goods may be strong enough to negate the need for price regulation. Accordingly, the first question in all pricing reviews conducted by the Commission is whether there is a need for regulation at all.

Under the revised pricing arrangements that commenced in September 2004 after the conclusion of the Petroleum Industry Pricing Review, the price of fuel products (petrol, diesel and kerosene) in PNG is set at import parity pricing (IPP) reflecting pricing ex Singapore. Unlike the previous price control arrangements where prior approval was necessary, the Commission’s role now is to monitor (under Section 32(A) of the Prices Regulation Act) InterOil Limited’s administration of the IPP arrangements of fuel products refined at the Napa Napa refinery.

Apart from being mainly a monitoring process, the Commission’s role in as far as fuel pricing is concerned also involves some price control activities. Specifically, the wholesale and retail margins wholesalers and retailers of fuel products can charge are price controlled. The Commission also monitors freight charges that are factored into the final pump prices of fuel products.

Final IPP changes and other relevant data are sent to the Commission by InterOil Ltd at the end of each month. Upon confirmation of the data by the Commission the prices changes are then passed through to the final pump price incorporating excise duties, freight charges and GST.

Domestic fuel prices in PNG are primarily influenced by world crude oil price movements, which have been on an upward surge since the second half of 2004. And domestic fuel prices have moved in the same direction during this period reflecting higher crude prices.

PMV and taxi rates is also a declared service under Section 10 of the Prices Regulation Act (Chapter 320) for price control purposes. The Commission is the authority responsible for reviewing and granting fare increases for PMV and taxi fares for all routes throughout the country.

In January 2005, the Commission granted an interim fare increase of 20 toea to apply to adult commuters for PMVs operating within the National Capital District (NCD). This increased the fares for adult commuters in NCD to 70 toea from 50 toea. High school and community school students are to still pay the old fares of 30 toea and 20 toea respectively.

As stated, this was an interim measure pending a major review into the PMV and Taxi Industry in the country to thouroughly ascertain all PMV and taxi fares for all routes in the country.

The Commission commenced its review into the PMV and taxi fare setting with the release of the Issues Paper on the 18 th of July 2005, outlining the main issues that need to be considered and the processes that the Commission will use in undertaking this review.

In the Issues Paper, the Commission invited comments and submission from the PMV and Taxi operators, the traveling public, relevant government entities and various stakeholders within the transport industry. These comments and submission will assist the Commission to form an opinion on whether or not PMV and Taxi fares are to be regulated, and if so, to recommend the basis of regulating PMV and taxi fares.

Considering that the PMV and taxi business has a direct impact on the livelihood of ordinary citizens and those commuters largely dependent on the public transport and in order to have a more favourable outcome and response, a total of 150 Issues Papers were sent, mainly to PMV and taxi operators. To date, the Commission has received only seven (7) submissions from the PMV and taxi operators and other stakeholders.

A separate questionnaire (Survey form) to be completed by individual PMV or taxi owners/operators was also attached to the Issues Paper. The Commission has received good feedback from operators within NCD and the Islands Region while responses from other regions were poor.

The Commission is currently preparing the Draft Report which will be released at a latter date. Similar to the release of the Issues Paper, the Commission would welcome comments or submissions on its draft determinations from all stakeholders of the transport industry.

In light of legislative changes relating to the introduction of the Independent Consumer & Competition Act 2002 in conjunction with amendments made to certain provisions of the Prices Regulation Act (Chapter 320), a review into water and sewerage rates was initiated by the Commission in March 2004. Water and sewerage services are declared services under Section 10 of the Prices Regulation Act.

At the conclusion of this review in November 2004, the Commission‘s final determinations of the water and sewerage pricing arrangements for both Eda Ranu and the PNG Waterboard were released.

For a period of five years commencing 1 January 2005 and concluding 31 December 2009, both Eda Ranu and PNG Waterboard will be able to adjust their average prices for water and sewerage services by a factor determined by the formula CPI+X. In 2005, Eda Ranu and PNG Waterboard adjusted their prices by CPI+11% and CPI+7.8% respectively. The CPI used here is the movement in the adjusted CPI (that is, excluding betel nut, tobacco and beverages).

Eda Ranu and PNG Waterboard will advise the Commission in advance of proposed changes that they wish to make in accordance with the formula, and the Commission will confirm the accuracy of the calculations based on the operation of the determined formula.

The Commission will retain the right to seek adjustments to proposed new tariff rates should it observe that the adjusted rates for lower volume users (the ‘lifeline blocks’) are growing at unacceptable levels, although this will not prevent the two businesses from making their full adjustment across all tariffs in accordance with the determined price path.

Others [Coastal Shipping rates; Road Freight rates; Stevedoring & Handling charges]

These services are also declared services under Section 10 of the Prices Regulation Act (Chapter 320) for price control purposes. Providers of these services are required under the Act to seek the Commission's approval before any price change.

The Commission envisages conducting pricing reviews (similar to the water and sewerage pricing review) into these services in the future, most likely toward the end of 2006 or early 2007.

This list of services for price control purposes was drawn up in the 1970s, and so the nature and circumstances of the PNG market today may be such that there may not be a need to regulate the prices of some of these services. Competition and contestability in the market for some of these services may be strong enough to negate the need for price regulation. Accordingly, the first question in all pricing reviews conducted by the Commission is whether there is a need for regulation at all.

The Commission is tasked with reviewing, adjusting and regulation of the tariff orders under the Electricity Regulatory Contract for implementation by PNG Power. The commission is responsible for issuing four (4) general industry licences. They include generation, distribution, transmission and Retail licence. Under the current arrangement PNG Power holds monopoly to generation and Retail Sectors, while the distribution and transmission sectors are contestable. The Commission adjusts tariff in a bundle pricing under the current regulatory arrangement.

PNG Power is regulated under a form of price control known as the maximum average price (MAP), thus, for each of the tariffs that PNG Power charges to their different classes of consumers (Industrial, General Supply, Domestic customers and public lighting) the average price of those tariffs must not exceed the MAP that the commission determines.

The Commission is tasked with thereviewing, adjusting and regulation of the tariff orders under the Harbours Regulatory Contract for implementation by PNG Harbours. PNG Harbors is granted with an Essential Port Services License to operate regulated services. These services, which are commonly known as essential port services include wharfage services, berthing services and berth reservation services.

The Commission assesses and determines PNG Harbour’s tariff submissions in accordance with the requirements set out in the PNG Harbours regulatory contract which sets out the price determinations and price directions.

The supply of essential port services are regulated by adopting an average revenue approach, such that the average revenue (AR) that PNG Harbours generates in any year must not exceed the tariff (Essential Services Price Control) increases set by the Commission.

The Essential Services Price Control (ESPC) is the amount the Commission determines as being the appropriate tariff change. The ESPC is determined by taking into account various cost factors that affect the operations of PNG Harbours.

Review, adjustment of tariffs and regulation of postal services include domestic standard letter, small private letter box, medium letter box and large letter box as well as international postal services. Under the provisions of the existing Post Regulatory Contract, Post PNG makes its annual tariff submission to the Commission for adjustment and review for the regulated services to be applied from the beginning of each regulatory year. In considering submissions, the Commission determines and evaluates the tariff on the basis of the cost drivers for Post PNG.

The Commission is tasked with reviewing, adjusting and regulation of the tariff orders under the Telecommunication Regulatory Contract for implementation by Telikom. The service categories of Telikom are classified into the Public Fixed network and the Mobile network. There are three (3) licences issued to Telikom to operate these services. These include General Carrier license, Public Mobile License and Value Added Service Licence.

Telikom is regulated under a form of price control known as the maximum average price (MAP). Thus, for each of the tariffs that Telikom PNG charges to its different classes of products, the average price of those tariffs must not exceed the MAP that the Commission determines.

Under the provisions of the existing telecommunications regulatory contract, Telikom makes its annual tariff submission to the Commission for adjustment and review for both fixed network and mobile services to be applied from the beginning of each regulatory year.

In considering the submission, the Commission is mindful of the regulatory contract requirements and the price path for the entire regulatory period. When reviewing the tariffs the Commission is required under the regulatory contract to ensure that charges for each service complements the level of service that it is expected to be provided.

Motor Vehicle Insurance Limited

The Commission is tasked with reviewing, adjusting and regulation of the tariff orders under the Compulsory Third Party Motor Vehicle Regulatory Contract for implementation by MVIL.

MVIL is regulated under a form of price control known as the Maximum Average Net Premium (MANP). The average tariffs must not exceed the MANP that the Commission determines. The Contract by its nature involves a two-way commitment in terms of the prices/premiums that MVIL can charge for its services and the level of service that it is expected to provide.

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