RVHS H2 ECON P1

This document consists of 8 printed pages. [Turn over ECONOMICS 9732/01 Paper 1 Case Study 12 September 2011 2 hour 15 minutes Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Write your index number and name on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Answer all questions. At the end of the examination, fasten your work securely together. Answers for Question 1 and 2 are to be handed in separately. Start Question 2 on a new sheet of paper. The number of marks is given in brackets [ ] at the end of each question or part question. RIVER VALLEY HIGH SCHOOL YEAR 6 Preliminary Examination in preparation for General Certificate of Education Advanced Level Higher 2

2 © RVHS 2011 9732/01 Answer all questions. Question 1 Developments affecting the Retail Petrol Market Table 1: Number of Petrol Stations in Singapore (as of Dec 2010) Player Number of Petrol Stations ExxonMobil (Esso) 65 Shell 63 SPC 38 Chevron (Caltex) 33 Total 199 Source: Competition Commission of Singapore Extract 1: Just one lone petrol station in Punggol One is a lonely number, and it is the reason motorists in Punggol are being driven mad. The new town has just one petrol station and long, snaking queues are common, especially during the weekends. The Singapore Petroleum Centre (SPC) station caters to 82,000 residents. Neighbouring new town Sengkang has three petrol stations. On busy days, as many as 10 cars line the road leading up to it, despite there being no huge discounts. When contacted, the Urban Redevelopment Authority (URA) said land is set aside for petrol stations in new towns. The release of sites for tender depends on factors such as the growth and size of the new town. SPC secured the 30-year Punggol site three years ago for $8.5 million. Land premiums paid for the retail petrol sites are generally high because of site scarcity. Prices of sites may differ because of location of site as well as the traffic volume in the area. Petrol retailers with better financial capabilities are more able to seek out premium sites with high car traffic. The URA said that while demand is a key factor, there are some areas, such as densely built-up Orchard Road, which are simply no-go zones because of "security and technical requirements". In all, there are about 200 petrol stations in Singapore. Areas like Serangoon and Bukit Timah boast at least three stations in a single kilometre stretch. Given the mobility of vehicle traffic, a petrol retailer needs a critical number of petrol stations, approximately 30 stations, located throughout Singapore to be viable. Source: Straits Times, 30 May 2010

3 © RVHS 2011 9732/01 Extract 2: Petrol Stations upping their game to woo customers Petrol stations, meanwhile, are upping their game to woo customers. Besides fuel, customers can get a whole lot more at the stations. For example, FairPrice Xpress stores at Esso stations were recently enhanced to add fresh produce such as frozen meat, cheese and vegetables to their line-up of products. It also trotted out Citibank drive-through ATMs at several outlets last year. Said Exxonmobil’s retail manager Thia Ling Ling: ‘With changing demographics such as more dual-income busy families, we offer our customers the convenience of shopping for their groceries, or withdrawing cash from an ATM, all while refueling their cars at the station.’ Source: Straits Times, 30 May 2010 Extract 3: The push for green vehicles in Singapore Leading car manufacturers yesterday urged governments, particularly those in Asia, to play a key role in kick-starting the electric vehicle (EV) revolution. This means giving monetary incentives to encourage consumers to buy these green cars rather than traditional ones that run on fossil fuels. When the adoption of such vehicles becomes widespread, the incentives can be removed and costs of EVs would have decreased too, said experts at a panel discussion on the opening day of the Clean Energy Expo Asia. EVs are considered more environmentally friendly as their greenhouse gas emissions are lower, while also addressing the issue of over-dependence on fossil fuels. French car maker Renault's Asean and Japan area operations manager Arnaud Mourgue said existing markets, such as Singapore's, need to provide significant incentives at the start for EVs to take off. Renault is in talks with the Energy Market Authority (EMA) and the Land Transport Authority (LTA) to bring in a fleet of these cars by this year for Singapore's EV pilot project. Under a current government programme, the Transport Technology Innovation and Development Scheme (Tides), taxes are waived for electric cars, but only for companies and organisations. Private car owners are not included in this test phase. The Green Vehicle Rebate scheme was introduced in 2001 to promote green vehicles, which are more fuel- efficient and emit less air pollutants than conventional petrol and diesel ones. Currently, buyers of such vehicles enjoy 40 per cent off the Additional Registration Fee (ARF), the main car tax, on passenger vehicles. While the government looks at new ways to encourage motorists to use these vehicles, buyers of green cars will get a tax break for another 12 months. The tax break on hybrid and electric cars will be extended till Dec 31 next year. On the other hand, compressed natural gas (CNG) vehicles will actually be removed from the scheme from Jan 1 next year. With CNG cars being ineligible for the green vehicle rebate, two reactions have surfaced. In one camp are the detractors, who say this will sound the death knell for the sputtering CNG industry. In the other are proponents who believe that gas will still be cheaper than other fuels. Source: Straits Times, 19 February 2011

4 © RVHS 2011 9732/01 Extract 4: Brazil: A front-runner in alternative powering of vehicles The race around the world to develop an alternative fuel to petroleum is making great strides in Brazil. Already a market leader in the ethanol industry, Brazil is also leading natural gas developments, making its claim to be a front-runner in alternative powering of vehicles a strong one. At the beginning of 2010, Brazil had over 1.5 million natural gas cars on the road and as of December 2010 12 million cars. The latest development is tri-fuel cars which can run on ethanol, petrol and natural gas, a common choice for taxis. This is proving popular in Brazil as not only is natural gas a lot cheaper to use, but the conversion in Rio gets you a 75 percent reduction in annual vehicle registration (IPVA). In São Paulo the IPVA reduction is 25 percent. With over 1,800 registered natural gas stations in Brazil, and with the price of petrol rising, natural gas stands out as the cheapest option. The average cost for natural gas was R$1.213 compared with R$2.538 for petrol with prices expected to rise for the latter. Source: Rio Times, 12 April 2011 Figure 1: Movements of Crude Oil and Retail Pump Prices Source: Petrolwatch and US Energy Information Administration

5 © RVHS 2011 9732/01 Questions (a) (i) Compare the change in crude oil prices between January 2006 and July 2008 with the change in retail pump prices over the same period. [2] (ii) Explain one possible reason why crude oil prices are more volatile than retail pump prices. [2] (b) (i) Describe the type of market structure operating in the retail petrol industry in Singapore. [2] (ii) A