Lima, Peru | Monday, December 09, 2013 09:34 pm | | |
Luis Felipe Gamarra - El Comercio
Translation: Vanessa Castro Chesterton - Living in Peru
Leslie Pierce is a man of few words. Sensible, discrete and cautious. He only makes public appearances once a year to discuss Alicorp’s fiscal performance. However, Pierce considers there is reason enough to stand up and say something. On one hand the Executive considers that the price of oil must still be reduced by a %15 margin. On the other, the Dumping and Subsidies commission of the Indecopi has just reduced the sanction against Argentinean oil, which was put into action in 2002 to allow the market to lower oil prices. To Alicorp, oil is a product which brings in 30% percent of its income, a product which has given it a 60% advantage over the market total, and thus a very important subject.
What is Alicorp’s main argument in order to make the Indecopi keep the sanctions against Argentinean oil in place?
The argument is made by Indecopi itself when it point’s out that an oil subsidiary such as the Argentinean might put the industry in danger. The Chilean case is a sad one; it was then that all their small businesses disappeared. Once they took over the market they raised the prices. In 2002 when the sanction was not in place, they took over 30% of the market, selling oil at lower prices. This hit small businesses very badly. Alicorp knew how to defend itself, we have different brands and we invested in advertising.
What is Alicorp’s position on the antidumping rights reduction in regard to import of Argentinean oil which would lead to a 20% to 7% decrease?
We congratulate the Indecopi on its independent decision making. In spite of pressure put on them by the media to eliminate antidumping rights entirely, Indecopi made an unbiased decision.
But are you in agreement with the measures taken by Indecopi?
Indecopi has said that if there is evidence that there is dumping by Argentinean oil companies it only applies to the situation in Chile. We are prepared to open trade as long as our competitors respect the cost structure already laid out as Bolivia and Brazil have already done.
But the reduction of sanctions will affect Alicorp most definitely. How do you plan to respond to the effects?
Alicorp will do what the industry sees fit to appeal Indecopi’s decision if it fails. We welcome the competition. But we will call out any practice which harms free trade and competition. What we fear is that the sanction could be completely removed and that our market could suffer the same fate as Chile’s. Today in Chile the Argentinean’s sell the most expensive oil in the region.
Minister Elena Conterno has discussed the concrete nature of concentration in the market.
The fact of having an important position in the market (60% in the oil market) is not a bad thing; it is nothing more than a prize for efficiency. What should be sanctioned or at least questioned is if we were to abuse our position of power and affect the free flow of supply and demand. Alicorp competes with 14 other oil companies both foreign and national which own 40 different brands.
Aren’t there obstacles in the market in order for more competitors to be able to participate?
Oil import tariffs are 0%, there is no tariff protection in place to protect the local industry, a position which Alicorp accepts because it was designed to compete under those terms. Size and concentration are not bad things because they allow small businesses to structure their productive process synergizing with large scale economies.
The Executive has pointed out that the price of oil should decrease 15% more, or else measures should be taken to intervene in the market. What do you think about that?
Minister Conterno takes the highest figure in the stock market along with the lowest; she makes a pretty simplistic analysis. It lacks all the different elements which go into the production process. In oil, it’s not just oil, its packaging, advertisement, distribution. I have no way of knowing if oil will drop by 15%, 20% or 25% because I know, unlike Conterno, that the oil price is defined by the market and not by the government.
Do you think the reasons behind the raise in oil prices still exist?
Prices don’t drop because Alicorp is the bad guy. They don’t drop because we have a cost structure which does not allow them to drop. Our prices don’t just drop because the Executive demands it; they do because they follow a certain rhythm.
Why don’t prices drop?
The people at the Executive are misinformed. First of all, it must be understood that a cost structure exists which allows us to set our prices independently from those of the competition. In oil’s case we have purchases which were not made at the prices as those in the stock market because vegetable oil was directly linked to petrol because it is a bio-fuel. Alicorp, like many other companies in the market had larger purchase periods calculating and estimating the effect the cost of petrol would have. That made Alicorp’s resources last longer than usual. When petrol prices and the market fell, Alicorp’s prices didn’t.
Will they fall now that international prices have fallen?
They already have. Unfortunately spokes people for the Executive don’t see it that way. If you check the prices for bottled oil, you will see that prices this week have dropped by 4%. If we add those reductions in price since December, that means 20 % in soles. This happens, not because Alicorp wills it so but because the market made it so.
How long will it take to finish your inventory with high prices?
A time will come when our stock will be the same as that of the repositioned figures, the market will make it so. The analysis done by the Executive has been light; it looks at a small period in time and distorts the market. They say the price of oil will drop, so people wait for the change to happen before buying oil, this makes it take longer for the oil stock to be used up.
Do you feel that the Executive is pressuring you into lowering your prices, even if it means going below your cost margin?
I hope that is not the message they are trying to send because that would be abusing our position of power. There is no reason for the Executive, or any of its spoke people to demand this, the market is the only one to make a real change. They cry out unfair use of power because our prices remain the same and small businesses then increase theirs but we have many examples of when we have lowered our prices, not because anyone demanded it but rather because it was a trend in the market. We may not have a system which allows new competition to enter the market but at least we have an efficient system.
How are Peruvian oil prices compared to those in other Latin American countries?
If we look at oil prices we have the lowest in the region, cheaper than Ecuador, Colombia, Venezuela, Bolivia and Chile. Chile is Argentinean domain and there oil costs vary between U.S.$ 2,2 and U.S.$ 2,6. In Peru prices range between U.S.$ 1,78 and U.S.$ 2,0. The problem is that companies which in any way dominate the market are continuously demonized. These companies should be congratulated because of their efficiency and not attacked and meddled with unfairly.
To read the original article click here