Z and BP warn watchdog that lower petrol margins could mean station closures

Tuesday, 24 September 2019

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Z Energy has warned petrol stations could close at the rate of 'one of week' if the country's competition watchdog makes a mistake intervening in the fuel market.

The Commerce Commission said in draft market study in August that gross margins on petrol had risen from less than 20 cents a litre during most of the period between 2000 and 2010, to 34c a litre last year.

It concluded that fuel companies had made 'excess returns' for most of the past 10 years.

There are currently 1300 petrol stations operated by about 20 different retail brands.

But Z Energy chief financial officer Lindis Jones told a conference hosted by the Commerce Commission in Wellington that Z would need to 'cut its cloth' and minimise investment if the commission's analysis stood.

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'An example of what this could look like is the industry in the first decade of this century,' he said.

'Retail sites were closing at the rate of one a week and a trend for under-investment in 'supply and security' was established.'

BP NZ managing director Debi Boffa says investments show competition in the fuel industry is alive and well.

BP New Zealand managing director Debi Boffa said it employed more than 3000 people 'directly and indirectly', and echoed Z's warning.

'When margins were low between 2000 and 2010, the industry saw almost 400 retail sites close and the exit of Shell,' she said.

The Commerce Commission is hearing arguments for and against regulatory intervention in the fuel industry at a four-day conference in Wellington that kicked off on Tuesday.

The commission has suggested excess profits could be reduced if changes are made to ensure independent petrol retailers can buy petrol and diesel from wholesalers Z, BP and Mobil on more flexible terms, or share their import infrastructure.

But both Z and BP have contested the commission's view that the industry is too profitable.

Z Energy insists it is not as profitable as the Commerce Commission has portrayed.

Fuel companies are expected to come under pressure to rationalise their networks over the coming decades anyway as a result of the uptake of electric vehicles and other more fuel-efficent cars.

The Ministry of Business, Innovation and Employment forecast in July that the country had already passed the point of peak petrol consumption and that sales would almost halve by 2050.

But Boffa said the fact that investments were being made in new service stations now showed that competition in the industry was working well.

Gull, Waitomo, NPD and Allied had built 76 new petrol stations over the past five years, she said.

'At the retail level, we see independent retailers rapidly building new sites, both unmanned and with full-service offerings increasingly on prime sites on main metropolitan routes.

'Put simply, the growth of independents in both the North Island and the South Island, especially in a period of a flat to declining market, does not at all sit comfortably with the notion that the wholesale market is broken,' she said.

Plans by Timaru Oil Services to invest '$100 million' in fuel terminals in Timaru and Mount Manganui were 'inconsistent with the assertion that new importers face barriers to entry', she said.

But there was support for market intervention from the Motor Trade Association.

Its energy specialist Ian Baggott said it generally supported the analysis in the commission's draft report and was delighted it had highlighted its own concerns 'particularly around the strict nature of some fuel-supply agreements that our independent members have brought to our attention'.

'We do believe that greater transparency and access for independent retailers to an active wholesale fuel market is the key to unlocking … desired improvements,' he said.

Commerce Commission chairman Anna Rawlings opened the conference by saying its draft market study set out some 'preliminary views' on the state of competition.

The Automobile Association has called on the commission to spell out how much the price of petrol could come down.

But Rawlings said the commission was 'not trying to draw conclusions on exactly what the price of petrol or diesel should be'.

The commission would publish its final report into the fuel market by December 5, which was a 'hard deadline', she said.