Petrol report may pave way for more competition in more towns

Thursday, 15 August 2019

Cheaper petrol could be on the way after the Commerce Commission delivers the draft findings of its landmark 'market study' into the $8 billion retail fuel market on Tuesday.

Gull New Zealand general manager Dave Bodger believed the watchdog would recommend changes to the wholesale market for fuel that would pave the way for more independent petrol station operators including Gull to open in more places, increasing competition.

'That was the nub of our submission.'

The market study is the first of its kind carried out by the consumer watchdog.

It was announced by Prime Minister Jacinda Ardern last year on the back of concerns that petrol prices had got less competitive, with large and unexplained variations in the price of fuel around the country.

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Gull NZ general manager Dave Bodger says its expansion in the South Island has been built on the assumption regulatory changes are in the wings.

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An earlier report by the Ministry of Business, Innovation and Employment (MBIE) in 2017, kicked off at the request of then energy minister Judith Collins, found there were signs the market might not be properly competitive.

However, the ministry's study was hamstrung by the fact fuel companies were under no legal obligation to provide information.

Ardern has suggested that the Commerce Commission's market study should settle the matter, saying New Zealanders deserved 'peace of mind that the price they're paying at the pump is fair'.

Angst over petrol prices threatened to boil over last year, with some petrol attendants reporting that they were being verbally abused by drivers.

Automobile Association principal adviser Mark Stockdale said the difference between the price retailers paid for fuel and the price they sold it at had increased since Z Energy took over Shell's retail business in 2010.

Ironically, that might be partly explained by the increased costs petrol companies were incurring running loyalty schemes for customers, the AA believes.

The AA has questioned whether some full-service chains may have gone as far as selling petrol below cost in parts of the country where they face strong competition, while charging more in Wellington and the South Island to make up the difference.

Z Energy has no complaints so far about how the market study has been conducted.

It said in a submission to the commission in February that fuel prices in Wellington were often 20 cents per litre higher than in nearby Levin, where Gull operates an unmanned petrol station.

'If aggressive price competition with unmanned service stations in some areas leads to manned service stations selling fuel at prices that do not fully recover costs, the AA contends this results in a cross-subsidy from other service stations,' it said in that submission.

'It would be interesting to establish if … some service stations are selling fuel at an unsustainably low price. Or to put it another way, is every litre of fuel sold at every service station sold at a profit?'

Prime Minister Jacinda Ardern says people deserve 'peace of mind that the price they're paying at the pump is fair'.

Pricing products below cost can breach the Commerce Act if the intent is to drive competitors out of business.

But there is otherwise nothing to stop companies charging consumers different prices for same product based on factors unconnected to the cost of supply, Stockdale noted.

Bodger did not think the commission would consider stamping out any unexplained regional variations it found in the price of petrol by directly regulating prices at the pumps.

'I think the Commerce Commission and the Government are aware they need to work with the market as much as possible. If you outlaw something, you have got to define what it is, and then people find a way around it.'

Judith Collins helped stoke a furore over petrol pricing in 2017 after she picked up the usually low-profile energy and resources portfolio and vowed to 'get to the bottom' of rising profit margins.

Instead, he expected new rules would oblige the four petrol companies that operate fuel terminals – Z Energy, BP, Mobil and Gull – to make fuel available to the country's 21 petrol retailers on the same terms that they supplied their own retail operations.

Gull owns a terminal at Mt Maunganui from which it serves its petrol stations in the North Island, but had not been able to justify the cost of building a similar facility in the South Island, so would be expected to benefit from such a change.

Bodger said Gull had leased or acquired land to establish six or seven petrol stations in the South Island, mainly in anticipation of new regulations allowing it to buy on competitive terms from terminal operators.

'We believe it is obvious that is the direction the Government will head in.'

The first of Gull's South Island stations will open on State Highway 1, south of Oamaru, next month.

Stockdale noted Timaru Oil Services had begun work on a terminal in Timaru that is due to be in service from mid-next year, and from which Gull has said it intends to source fuel.

That was a sign the wholesale market might be becoming more competitive even before any new regulations, he said.

MBIE has forecast overall demand for petrol may have past its peak and will drop by 47 per cent by 2050.

That could suggest the commission might not need to be too concerned about the risk of any new regulations reducing the incentives for companies to build new terminal infrastructure.

So far, the country's biggest petrol retailer, Z Energy, appears phlegmatic.

Z Energy spokeswoman Victoria Crockford said it had been supportive of the retail fuel market study at its inception 'and the constructive conduct of the study to date has only confirmed that position'.

'We can only speak for ourselves in relation to practices in market, and we haven't changed how we compete since last December when the study was announced,' she said.

The Commerce Commission is due to finalise the findings of its draft report by December, though it can only make recommendations on how the Government could intervene.

Both the watchdog and the Government can initiate a market study and there have been various calls for it to next consider potentially meatier prey, such as the banking, supermarket retailing, insurance, or construction-materials industries.

Those are only likely to grow if its first market study is seen as making a difference for motorists.

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