Government announces probe into retail fuel industry, amid 'concerns' over competition problems

Monday, 3 December 2018

New Zealand's fuel companies face a major investigation by the Commerce Commission.

Petrol prices will come under the microscope, with Prime Minister Jacinda Ardern saying despite recent falls questions remain about whether the market is competitive.

Ardern and Commerce and Consumer Affairs Minister Kris Faafoi announced on Monday that the retail fuel market will be the first market study to be undertaken under new powers granted to the Commerce Commission in November.

The move is far from a surprise. While Faafoi had earlier pledged to 'take the politics out' of market study powers, Ardern signalled that retail fuel was likely to be the first study of its kind back in early October, claiming motorists were being 'fleeced'.

'For many families and businesses, [fuel] is indeed a core expense,' Ardern told reporters at her weekly post-Cabinet press conference.

Prime Minister Jacinda Ardern, pictured with Minister of Commerce Kris Faafoi, effectively announced the study weeks ago, when Ardern said motorists were, in her opinion, being 'fleeced'.

'It is unacceptable that we're unable to say with any certainty that New Zealanders are paying a fair price for fuel.'

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Debi Boffa, BP New Zealand's managing director, said the Commerce Commission were the right people to undertake the study.

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The Commerce Commission will be required to publish its study by December 5, 2019, despite its chairman Mark Berry telling MPs on November 29 that attempting to complete the study within a year could put pressure on the organisation.

Ardern said it was possible an interim report would be completed within nine months, and that Ministers were being asked to undertake work in order to be in a position to possibly take action quickly. Ardern denied she was prejudging the outcome.

'What I don't want is us to have a report in 12 months time and then be in a position where it takes us another 12 months to undertake work' in response to the study, Ardern said.

Market may have problems

An earlier study of the industry, undertaken by the Ministry of Business, Innovation and Employment (MBIE) undertaken in 2017 at the request of then Energy Minister Judith Collins, said that while firm conclusions could not be drawn, there were signs that the market may not be operating in a competitive way.

The MBIE study was hampered by the fact that the fuel companies were under no legal obligation to cooperate, however the commission now have the powers to compel companies to provide information.

Concerns over petrol prices increased as petrol prices rose sharply in the second half of 2018, approaching $2.50 in many areas. Since then, prices have dropped sharply as the New Zealand dollar strengthened and global oil prices plunged, amid concerns of a global slowdown in growth.

Ardern said her concerns about petrol prices remained. New Zealand had close to the highest prices for petrol in the OECD when tax was excluded, whereas back in 2008, New Zealand had among the lowest prices.

Faafoi said several possible markets were suggested for the first study but the retail fuel market 'clearly met the test for investigations'. He would not say what other markets had been suggested by colleagues.

'Simply, it's in the public interest to ensure people and business aren't paying too much for fuel. There are existing indications of competition problems in the retail fuel market that are of concern to me, such as the more than doubling of petrol and diesel importer margins over the past decade,' Faafoi said.

The terms of reference for the study would be published in the Gazette on Wednesday, December 5. A spokesman for the commission said the organisation would not be commenting until the terms of reference had been officially published.

The right people to do it

New Zealand's petrol companies have said they would welcome such a study, as they defended competition in the industry.

'The Commerce Commission are the right people to do this work because they have the level of independence required to confirm New Zealand has a fair and competitive retail fuel market,' BP's New Zealand managing director Debi Boffa said in a statement.

'We will work openly and constructively with the Commerce Commission to support the process, in the same way we have done in previous studies.

In May, Boffa was asked to come to Parliament for a meeting with Energy Minister Megan Woods, after Stuff published details of an internal email detailing the company's pricing strategy in the lower North Island, where prices were raised in several stations in an attempt to boost sales at another.

AA spokesman Mark Stockdale welcomed the fact that the commission had been given a year to undertake the study, a sign that it was likely to be a comprehensive piece of work.

However Stockdale said he was disappointed that the AA had not been asked for input into the study's terms of reference, having called for years for such a study to be undertaken.

'There's a number of concerns that the AA's raised across the fuel market and we hope they will be included in the terms of reference but we don't know because we haven't been consulted and certainly we'll be disappointed if it's not comprehensive enough.'