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Bulk-buy bid to counter fuel costs

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Public sector fleets throughout the country could combine their buying power to bulk buy millions of pounds worth of fuel on the futures markets in a bid to combat rocketing costs.

The proposals would see a regional co-operation between local authorities and extend to local NHS trusts, schools, police forces, fire authorities and even government fleets.

Futures trading works by allowing buyers to fix an agreed price up to 18 months before purchase.

Critics warn purchasing oil this way commits consortia to trades far in advance and the risk is that the price of oil could fall during that period.

To even out the risk of the losses caused by unexpected falls in the price of fuel, purchasing would be on a monthly basis, one year in advance.

If the initiative had been introduced a year ago, local authorities could have reduced their fuel bills by a third compared to today’s prices, experts say.

The initiative is being championed by Kent County Council.

“The ball started rolling when we heard about a bus company that had bought fuel for its current use at 70p a litre through bulk buying, when we were paying considerably more than that,” said Kevin Harlock, director of commercial services at the council.

“We thought that if enough local authorities could collaborate on forward buying, we would all be able to benefit.”

The wide-ranging deal would cover fuel for vehicles, but also heating oil, which is one of the biggest expenses for local authorities.

Kent County Council spends £7 million a year on oil for fuel and heating.

It buys about 400,000 litres of derv a year for its bunkered network, used by its 900 commercial vehicles, in addition to any fuel bought from forecourts.

It already has experience on the futures market, as it spends £500 million a year buying electricity and gas on the Rotterdam exchange, but it needs to work in partnership with other organisations to have the volume requirements to bulk buy oil products.

Mr Harlock added: “We have been in touch with local authorities and there has already been a considerable amount of interest.

"We are hoping to meet to discuss the proposals over the next month.”

NHS Trusts and even the Ministry of Defence are now being targets ask their views on being involved.

Their support would also provide additional benefits, as the different groups could share bunkering sites to reduce the distance covered by vehicles when filling up.

Purchasing would be on a regional basis to limit transportation costs, the council said.

However, Harlock said he expected the bulk buying of fuel would be limited to commercial vehicles only, as the administrative demands of expanding the initiative to the car fleet would be too great.

The council’s buying programme is now being developed with the help of the South East Improvement and Efficiency Programme, part of the Local Government Association.

 

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