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MISAWA AIR BASE, Japan — Soon-to-be retired Air Force Master Sgt. Jamal Qaiyyim winced at the figures on the pump: $28.95 for a little more than 14 gallons of gas.

In only four months’ time, he was paying about 35 cents more per gallon for Army and Air Force Exchange Service fuel at Misawa than he was in September, when the same fuel cost $1.64.

Since his fill-up in January, when gas cost $1.99 a gallon, prices have dropped by about 3 cents a gallon for the month of February. But Japan customers still are experiencing sticker shock at the gas pump.

“I think they’re kind of high,” Qaiyyim said of fuel prices. “They say we’re paying an average of what people are paying in the States, but I don’t know if that’s true because we’re not there. I’d like to see some facts — if you say it’s an average, what index are you using?”

Qaiyyim isn’t the only one with questions. Since AAFES rolled out a monthly gasoline pricing policy for mainland Japan and Okinawa on Oct. 1, consumer confusion and outrage have soared with climbing prices.

Customer complaints

In the latest in a series of letters to the editor about AAFES fuel prices published in Stars and Stripes, Steve Sharp of Yokota Air Base, Japan, wrote Feb. 2: “Since the Army and Air Force Exchange Service decided to ‘standardize’ gas prices we have purchased three tanks of gas at the local station. Why? Because I would much rather support the local Japanese economy than AAFES’ bottom line.”

Sharp wonders how AAFES could charge $2 a gallon in January when “the www.doe.gov Web site clearly says the December 2004 national average was $1.85.”

AAFES Pacific region spokesman Master Sgt. Donovan Potter said AAFES has received “more than normal” the number of calls from customers who don’t believe AAFES fuel prices match current trends in the United States.

Part of the confusion stems from consumers not realizing that in Japan and Okinawa, AAFES sells only midgrade fuel, with an octane rating of 93, which costs more than regular unleaded gas, AAFES officials said.

When setting the monthly price in those two areas, AAFES refers to the Department of Energy’s average cost of midgrade fuel in the States. Midgrade is the only gas available to AAFES in Japan and Okinawa “because it is what the military uses for their vehicles,” said Army Sgt. 1st Class Amanda Glenn, an AAFES Pacific region spokeswoman.

“We’re not trying to hide anything over here,” Potter said. “We still feel it’s a good value.”

Public explanation

To back up that statement, AAFES explained its monthly pricing formula in more detail when announcing February fuel prices about a week ago.

“We figured we’re going to start doing that because people are confused on how we do it,” Glenn said. “We want to be up front about it: ‘This is how we do it.’ We’re not trying to cheat anyone.”

Here’s how the formula worked for February: AAFES took the Department of Energy average from the weeks beginning Dec. 27 and Jan. 3, 10, 17 and 24, added them together, divided by five and added what the company calls an incremental dispensing cost (about a nickel) — essentially the expense of providing fuel in an overseas location.

DOE averages are posted each Monday online.

AAFES typically uses a rearview four-week average, except in months with five Mondays — as was the case in January.

The five-week midgrade average set by DOE during the period AAFES used was about $1.91 a gallon. In Japan and Okinawa, after the $0.05828 dispensing cost is added to that average, a gallon of gas costs $1.96.

The math adds up. But some consumers say the logic behind the new pricing falls short.

“The whole idea of matching prices to stateside averages, when the price has nothing to do with acquiring gas from the States, boggles my mind,” said Misawa Air Base contractor John Doyle.

For Japan and Okinawa gas, AAFES currently pays $1.38 per gallon to purchase wholesale, midgrade fuel through the Defense Energy Support Center at Yokota Air Base near Tokyo. That price is locked in by an annual contract beginning Oct. 1, AAFES officials said.

“There’s no reason to reflect market costs if they’re not buying it for market costs,” Doyle said. “It almost seems like they’re capitalizing on the recent hike on gasoline prices (in the States) so they can make more profit.”

Included in stateside market costs are taxes, which AAFES does not pay in most overseas outlets. (AAFES pays 15 cents a gallon in tax on Guam because it’s a U.S. territory). According to the Department of Energy, about 24 percent of $1.84 — the average retail price for a gallon of regular unleaded gas in December — came from taxes. Gas retailers across the United States pay state, federal and sometimes local taxes on the sale of gasoline.

Month-to-month

All overseas AAFES stations now change prices monthly based on the prior month’s Department of Energy average, Potter said. “We believe that given the AAFES global responsibility, the best policy is to provide exchange customers consistency in the way this policy is applied.”

Guam and South Korea have had month-to-month fluctuations for some time; AAFES’ wholesale costs in those locations change often based on the economy, exchange officials said. In South Korea, for example, the exchange buys gas from S&K Corporation in Seoul. AAFES paid the local supplier $1.48 for a wholesale gallon of unleaded fuel and charged consumers $1.90 last month.

Doyle said it makes sense for AAFES to change prices monthly in countries such as South Korea, where wholesale costs bounce up and down. But why, in Japan, “should we have to pay for their contract policies in Korea when we have a different set of policies here? They’re trying to standardize a concept simply because it’s a concept.”

AAFES Pacific Rim Region commander Col. Michelle Gardner-Ince stated in a news release last year that prior to the implementation of the Japan policy, only AAFES’ gas prices in Okinawa, Japan, Turkey and the Azores were set for the entire year. “As a result, the down swings in the market that reflected lower prices did not impact in these four areas,” she said.

With current gas prices in the region, AAFES earns from a high of about 48 cents on the gallon in Japan to about 12 cents on Guam, based on wholesale and dispensing costs.

In fiscal 2004, AAFES gasoline consumption in Japan, South Korea, Guam and Okinawa averaged about 1.66 million gallons a month, down about 1 percent from 2003, according to Potter, who said average monthly consumption has been steady over the past several years.

Helping MWR

While AAFES does generate profits on gas, “100 percent of those earnings are returned to customers” via Morale, Welfare and Recreation programs and capital expenditures to fund AAFES, Glenn said.

About 67 percent — or $229 million — of the exchange’s earnings in fiscal 2003 was returned to the services in the form of MWR dividends. In the Pacific, AAFES returned more than $31 million to Pacific MWR programs, Potter said, with $4.7 million earmarked for the Air Force, $15.2 for the Army and $11.8 for the Marines.

But the MWR justification doesn’t sit well with some customers upset over higher fuel prices.

Doyle said MWR funds should be derived from profits stemming from MWR programs.

“If the programs are not for profit, but provide a valuable service, such as a morale-booster program, then the funding should come from the defense budget,” he said. “The programs are there to the benefit of servicemembers, therefore DOD should be funding MWR, if they do not currently do so.”

Some consumers say they don’t benefit from MWR: “Please do not defend these actions with your Morale, Welfare and Recreation campaign when those of us at Torii Station see very little of this donation and the tennis courts at Kadena Air Base are in the poorest possible condition a person could play on,” wrote Tam Lipsie of Torii Station, Okinawa, in a recent letter to Stars and Stripes.

Doyle said it’s all about perception: “If people don’t know that the (wholesale) price is set at $1.38, then they’re thinking that AAFES is buying it for close to what it is in the States and that their price is going to go up because for everybody else it is.”

Qaiyyim, the Misawa motorist, said if someone told him AAFES paid $1.38 for a wholesale gallon of gas in Japan, “that would be trying to start a fight.”

Navy Exchange prices locked in

The Navy Exchange has not opted for a monthly pricing policy in Japan, according to Larry Boone, automotive program manager for Navy Exchange Services command. NEX’s cost price through Defense Energy Support Center is “generally not reflective of U.S. cost prices, taxes considered,” he said in a written e-mail response to Stripes.

“NEX does change prices monthly at some overseas locations, but that is because the [wholesale] price changes monthly,” he wrote.

In Japan, NEX charges $1.74 a gallon for midgrade fuel at its Navy base service stations. Like AAFES, NEX also is paying a $1.38 a gallon for wholesale gas for fiscal 2005.

“NEX set the retail price in Japan based on a markup starting at 20 percent,” Boone said. “The price is set for the year, although this year NEX set the retail price with the intent of an adjustment beginning 2005. There is no talk of an adjustment at this time.”

The result: AAFES customers currently are paying 22 cents a gallon more than NEX motorists to tank up their cars.

The price discrepancy can be hard to swallow for some. After recently moving to Misawa from Sasebo Naval Base, Chief Petty Officer Greg Williams was shocked on his first visit to the pump station.

“Why is it 20 cents higher here than it is in Sasebo?” he remarked. “That’s crazy. There’s a time to make a profit, and there’s a time to make a killing, and they’re making a killing.”

AAFES officials insist the switch to a monthly pricing formula was done in the best interest of the customer, replacing an arbitrary overseas policy with a consistent one.

“AAFES abandoned the cost-based pricing policies of the past because they were too arbitrary. The objective is to offer motor fuel prices consistent with the U.S. market,” Potter said.

— Jennifer Svan

author picture
Jennifer reports on the U.S. military from Kaiserslautern, Germany, where she writes about the Air Force, Army and DODEA schools. She’s had previous assignments for Stars and Stripes in Japan, reporting from Yokota and Misawa air bases. Before Stripes, she worked for daily newspapers in Wyoming and Colorado. She’s a graduate of the College of William and Mary in Virginia.
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