Cost hikes fuel oil venture

Bills up £239m in two years

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Rocketing fuel prices have led 30 councils to consider jettisoning their existing suppliers to form a consortium to bulk buy oil on the world's financial markets.

Kent CC is hosting a summit in London in September in a bid to sign up new local authorities to its plan to purchase oil at a guaranteed price on the futures market to slash the costs of operating vehicle fleets.

The council's 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 cost will just keep on rising."

The summit comes after new Local Government Association research revealed the rising prices of oil, petrol and diesel had increased councils' costs by £239m over the past two years. As much as £780m is expected to be spent fuelling refuse lorries, gritters, meals-on-wheels vans and other vehicles this financial year.

However, chancellor Alistair Darling has ruled out exempting councils from fuel duty. The list of those invited to the summit, partially seen by LGC, includes a range  of districts, unitaries, London boroughs and some regional improvement partnerships from across the country. Kent anticipates representatives from central government and the CBI will also attend.

The proposal would involve councils forming a consortium to buy oil wholesale on the open market. By purchasing in bulk when conditions are deemed  advantageous, savings could be made when the price of oil rises.

Kent said a large county currently pays around £1.15 a litre for diesel, while parts of the haulage industry which bulk buy on the open market get their diesel for closer to 90p - a 23% saving.

Kent's model would be not-for-profit. Oil purchased would be for council vehicles only, rather than buying with a view to selling it back to the market, as happens in the private sector.

The move comes as many councils fear service cuts will have to be made  to compensate for the rise in the cost of fuel. LGA chairman Sir Simon Milton (Con) warned earlier this month that escalating fuel costs would force councils to "come up with innovative ways to make their money stretch further".

Oxfordshire CC leader Keith Mitchell (Con) said his council would attend the summit. He added: "There is a concern that, because of the rise of the cost of oil, we will be looking at budget increases that we cannot do much about."

However, London Councils director of local government finance Stephen Lord warned that the scheme — although it could lead to savings — may backfire if councils committed themselves to buy at high prices and the value of oil then fell. "If you are buying on the futures market, there is the possibility that prices could go down," he explained.