Stations, refineries brace for impact of lower pump prices

by Kanako Takahara and Akemi Nakamura

With higher gas taxes set to expire, Kazuo Yaginuma, spokesman for a gasoline station business, has been fielding a lot of phone calls lately from reporters asking what the impact might be.

His firm, Aizu General Group, in Aizu Wakamatsu, Fukushima Prefecture, announced earlier this week that it will lower pump prices by ¥25 per liter from Tuesday.

“Customers will probably come to our stations on April 1, expecting lower gasoline prices. We just can’t say to them, ‘We won’t do it,’ ” said Yaginuma, whose company owns 21 stations in Fukushima and Niigata prefectures.

The firm made the decision to lower prices immediately as chances fade that the government will be able to extend a bill on provisional auto-related taxes that expires Monday.

The Democratic Party of Japan-led opposition camp opposes the extension, which has become a highly politicized tug of war.

“To abolish the provisional tax from fiscal 2008 is a discussion ignoring reality,” Prime Minister Yasuo Fukuda told a hastily arranged news conference Thursday.

Failure to pass the bill in the opposition-controlled Upper House would put an end to the ¥25.10 per liter provisional gas tax rate and consequently lead, at some point, to a drop in pump prices.

Some filling station owners may follow Aizu General’s lead, but it does not necessarily mean gas prices will drop suddenly nationwide come Tuesday.

Any gas shipped to retailers through Monday will still be taxed at the current rate.

If they cut the pump price, retailers who bought in March would be on the hook for the ¥25.10 per liter cost.

According to the Petroleum Association of Japan, an industry group of oil suppliers, if retail prices at all filling stations fall by ¥25 per liter from Tuesday, retailers would take about a ¥20 billion hit. Stations would still be holding an estimated 800,000 kiloliters of gasoline at the end of March.

Some stations, though, may be closer to using up their inventory than others, an association official noted.

One of those likely to keep prices up till their higher-priced gas is sold is a company based in Chiyoda Ward, Tokyo, that operates 10 gasoline stations in Tokyo, Chiba and Saitama prefectures.

“What we are doing now to protect our business is to reduce in-stock gasoline as much as we can,” said an official at the company, who asked not to be named. “But some of our stations may have no choice but to cut retail prices if their rival stations do so” Tuesday.

Given the circumstances, gas suppliers and retailers fear that consumers may rush to the pumps on that day, expecting to find lower prices everywhere.

In anticipation of this, Zensekiren, an industry body with some 21,000 gasoline retailers nationwide, is asking its members to put up notices saying prices may not fall from April 1.

Idemitsu Kosan Co., which operates refineries around the nation, said it started handing out manuals earlier this month designed to help station attendants explain the gas tax to customers.

Gas suppliers are also bracing for a flood of orders from retailers starting April 1.

Nippon Oil Corp. is asking retailers to plan ahead so they won’t swamp refineries with orders in an effort to keep pace with an expected torrent of customers in April.

If gas wholesalers receive too many orders, they may not be able to respond to them all at once, the company said.

The current hubbub over the possible termination of the provisional tax may not end soon. There is every chance the tax will be revived at the end of April.

It’s just a matter of time before the Lower House overrides the Upper House veto. The bill will go back to the Lower House for a second vote 60 days after it was first passed, whether the Upper House rejects it or fails even to bring it to a vote. The Lower House passed the bill on Feb. 29.

Reinstating the higher tax would likely cause yet another scramble among businesses and consumers, said an official of a major gas station chain in the Kanto region.

“If we can keep retail prices lower (indefinitely), it would help us increase sales because people use their cars more frequently,” he said, asking to remain anonymous. “A reinstatement would increase our workload and confuse our customers.”

Yaginuma of Aizu General said the Liberal Democratic Party-New Komeito ruling coalition and the opposition camp should find a way to avoid further upheaval.

“We’ll get exhausted serving customers if the tax is reinstated. We really hope that will not happen,” he said, noting his company has yet to decide on a price if the provisional tax is revived.