Councils looking at playing oil market to cut costs

Aug 8 2008 by Adrian Pearson, The Journal

NORTH East council bosses could start playing the oil market after the region’s fuel bill shot up £3m in a year.

They are considering whether to pool their resources with authorities from the Midlands and Home Counties and bulk- buy at a guaranteed price to avoid soaring costs.

The proposals would see them form an oil consortium checking the futures market for the best deal. Although the plan should save on the cost of petrol and diesel, there is a small risk that councils could be locked into expensive prices if the price of oil came down radically.

Spending chiefs at Kent County Council are hoping to host a fuel summit next month where representatives of North East councils would see if a system can be set up to tackle the threat of rising fuel bills.

Kent chief executive Peter Gilroy said: “We would use sophisticated software that buys energy on the open market.

“If we put together a scheme like this on a national scale, it could save local government millions.

“Oil is going to be local government’s Achilles heel; the costs will just keep on rising.”

Newcastle Council has estimated its fuel bill this financial year will rise by almost £400,000 to £2.182m, while in Gateshead, council officers predict some parts of their fuel bill will drop, but diesel costs will rise by £300,000.

In Durham, the county council predicts a rise of around £455,000 on its fuel bill.

With the Tyne and Wear authorities, the two county councils and several district authorities taken into account, the total North East rise could be more than £3m if oil prices do not fall substantially more than they have in recent days.

Liberal Democrat Coun Peter Allen, who sits on Newcastle’s procurement committee, said the possibility of increasing the council’s buying power was an idea the region as whole would be eager to get behind.

He added: “We already come together to buy oil at discount and, yes, there have been talks about just how big an organisation we can put together and what the benefits would be. There are always risks involved, and if we buy at a set price that seems cheap there is nothing to say the market will not change and open prices go down even further.”

Councils in Northumberland, Tyne and Wear and Durham will be monitoring the arrangements through the North East Purchasing Organisation, a collaboration which already sees the authorities pool their resources to buy products at a discount if available.

On average a large council will pay around £1.15 a litre for diesel but parts of the haulage industry which already bulk- buy on open markets get diesel for around 90p.

It is hoped that a reduction of around 20% could be achieved, although councils will not sell-on excess fuel at a profit as sometimes happens in the private sector.

The leader of Sunderland Council, Paul Watson, said: “Sunderland was one of many local authorities across the country approached by Kent to take part in the conference.

“While we are not attending, we will be watching developments with interest.

“Sunderland, like every other local authority, must consider what cost-cutting initiatives may be available to save the council tax payer money.”

Andrea Tickner head of corporate procurement at Gateshead Council said: “The North Eastern Purchasing Organisation is currently working with Kent County Council, the Central Buying Consortium, Eastern Shires Purchasing Organisation, Yorkshire Purchasing Organisation and West Mercia Supplies on matters such as the rising cost of fuel.”