Jacinda Ardern says New Zealanders are being ripped off over petrol

Tuesday, 20 August 2019

The Commerce Commission has used new powers to conduct its first 'market study' into the fuel industry, but it will be up to the Government to decide how and whether to act.

A landmark report into the fuel industry by the country's competition watchdog shows New Zealanders are being 'fleeced at the pump', Prime Minister Jacinda Ardern says.

Minister Kris Faafoi wants law change for better deal at pump

The draft report into the $10 billion fuel industry stated that petrol companies appeared to have made 'excess returns' for most of the past 10 years, with profits 'persistently above the returns earned by comparable firms internationally'.

Commerce Commission chairman Anna Rawlings said earlier that fleeced was 'not a term that we use'. But she said the commission's current view was that the fuel market was not as competitive as it could be and the core problem was the lack of an 'active wholesale' market for fuel.

Drivers are paying too much at the petrol pump because the big fuel companies have a stranglehold on the market - and the infrastructure.

'Our preliminary findings suggest that many fuel companies are earning returns on investment that are higher than what we would consider a reasonable return to be,' she said.

* What we pay at the pump: why does the price of petrol vary so much?

* Fuel companies push back on PM's claims Kiwis are fleeced**

Z Energy shares had fallen by more than 3 per cent in mid-afternoon trading to $6.39 in the wake of the report and the Prime Minister's comments.

Z chief executive Mike Bennetts said it did not believe its returns were unreasonable 'given the level of investment we make and the risks Z incurs across our operations'.

The commission has set out proposals for how the wholesale market could be improved, which it believes could flow through to cheaper prices at the pumps.

These centre on changes that would make it easier for independent petrol retailers to source fuel from oil terminal owners Z, BP, Mobil and minor-player Gull on better terms.

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Either law changes or a negotiated deal with oil companies appear possible.

Bennetts said Z agreed with the commission that terminal arrangements 'required updating'.

'We look forward to working with the commission on a model that's fit for purpose today and tomorrow,' he said.

Ardern responded fiercely to the draft report's findings.

'Now the Commerce Commission is going to finish its report. It is likely then they will give us a steer on what happens next, but I can tell New Zealanders we cannot stand by while they are facing that pressure at the pump and being fleeced.'

The Government instructed the competition watchdog to look into the fuel market in December on the back of concerns that petrol prices had got less competitive and that large variations had emerged in the price of fuel around the country.

Taxes account for more than half the price we pay at the pump. (Video first published in May 2019)

The commission is due to finalise recommendations from its 424-page draft report on December 5, after which it could be back to the Government to decide whether to take action.

Concerns about competition in the fuel market increased after 2016, when the commission approved the acquisition of Caltex NZ's business by Z Energy in a non-unanimous ruling that sent Z's share price sharply higher.

Rawlings said Z Energy, Mobil and BP controlled 90 per cent of the country's petrol and diesel supply giving them 'a significant advantage over any other potential rival importers, as their costs to deliver fuel are lower'.

'Not only have other fuel importers been unable to access the wholesale market, but the majors themselves have limited incentive to compete with each other during the terms of their supply contracts. As a result, competitive pressure does not appear to be driving down wholesale prices in New Zealand,' Rawlings said.

If the wholesale market could be made more competitive, the commission would expect prices at the pump to come down, she said. However, the commission has declined to guess by how much.

The commission said it was considering 'two broad sets of options' to create a more competitive wholesale market for fuel.

Neither were quick fixes but might help to open up the market and improve competition over time, Rawlings said.

The options were to ensure 'greater contractual freedom' that made it easier for independent petrol sellers to switch between suppliers, and allowing independents to 'participate' in the majors' joint infrastructure, such as their terminals.

It was possible the commission in its final report might recommend forcing the oil majors to sell fuel to retailers at an advertised 'terminal gate price', associate commissioner John Small said.

Gull New Zealand general manager Dave Bodger said the latter measure would be simpler than other types of regulation the commission appeared to be considering and has previously said that Gull had been anticipating such a change to support its expansion in the South Island.

Rawlings said the commission was also considering recommending changes to improve the 'transparency of premium petrol prices'.

These could include requiring petrol companies to advertise the price of 95 and 98 octane fuel on their roadside signs, alongside the price of 91, or getting a voluntary agreement from them to do that.

AA adviser Mark Stockdale said the AA had asked the commission to look into a growing price premium for higher-octane fuels and was pleased to see that featured in the report.

But Gull NZ general manager Dave Bodger said he had been surprised by the weight the commission had placed on the extra premium and its suggestion for an education campaign on different types of fuel.

'I don't think we have got a campaign that says barista coffee is more expensive than instant.'

Small said the level of taxes on fuel was 'not a competition' issue, so not an issue for the commission.