Petrol could soon be cheaper as the Government brings in new rules for the fuel industry

Thursday, 27 February 2020

Regions of New Zealand where there is limited petrol competition could see their prices drop up to 30c a litre if Government proposals are successful.

The Government released its response to the Commerce Commission fuel market study, which found that motorists were paying more for their petrol than they should.

It is proposing changes that are designed to make the market more competitive, and bring down the cost of fuel.

A Fuel Market Bill will be drafted to pass in the middle of this year, with industry consultation on proposed regulations.

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'The action the Government is taking in response to the commission's report forms a package of solutions to deal with entrenched problems that have been around since the 1980s,' Energy and Resources Minister Megan Woods said.

'We're introducing changes that will promote greater competition in the fuel market at the wholesale level and lead to lower prices on the forecourt for motorists.

'We know that the cost of fuel is significant for households and businesses. The Government is giving this bill priority and we will pass it into law later this year.

Energy and Resources Minister Megan Woods explains the Government's response to fuel prices.

'The commission's report found that companies are making high profits due to a lack of competition in the industry. The report confirmed our concerns that motorists are paying higher prices for petrol and diesel than could be expected in a competitive market.'

She said the Government's focus on making changes at the wholesale level would see smaller players such as Waitomo and Gull gain access to cheaper fuel. That would put pressure on other retailers to adjust their prices, too.

'Cumulatively, the suite of measures we're introducing will mean competition can begin to flourish, and the benefits will filter down to consumers,' she said.

The new bill will include a more transparent wholesale pricing regime, requiring fuel suppliers to post the prices they sold at to wholesale customers at storage terminals.

Government expects the changes to result in more competition.

There would also be rules to ensure contracts between fuel suppliers and customers were fair and supported competition, a new dispute resolution scheme, and improvements to the monitoring of the market.

It will also introduce legislation to regulate the display of discounted pricing at retail outlets, should the need arise.

Woods said her announcement was addressing 'hundreds of millions of dollars being transferred from the pockets of consumers to the fuel companies'.

She said that when a market was more competitive and fair, there were lower prices, and said the 'Gull effect' had shown savings between 10 cents and 20c.

'There's examples where we've seen even 30c-a-litre difference when a competitor moves into the market.'

She said the effects should be felt by consumers within the next year and there should be an end to geographical spreads - such as the higher prices paid in the South Island.

AA spokesman Mark Stockdale said the impact could be less in urban areas where there was already competition.

'If this leads to more suppliers entering the South Island and bringing prices down, then that's good but it may be that the North Island is not that attractive because it already has a lot of competition and therefore margins are lower.'

Megan Woods said the Government needed to act swiftly.

There should be a drop in premium petrol prices, he said. Premium prices will be required to be advertised on the roadside board.

'At the moment the price difference between regular and premium can be up to 20 cents and that price is not justified,' he said.

'We think by displaying the premium price that gap will fall.'

'What I want to see is a fair system, what you're paying when you fill up your car isn't dependent on how many people are able to enter that market.'

Fuel companies have been approached for comment.

Dave Bodger, general manager of Gull NZ, was cautiously optimistic. He hoped the Government would adopt Australia's model for terminal gate pricing and not try to 'reinvent the wheel'.

Terminal gate pricing is designed to increase competition by making companies that sell fuel wholesale be transparent about the price.

Some petrol market changes could be implemented voluntarily without legislation, commission believed. (Video first published in January, 2020)

The Government also wants to open up access to fuel storage terminals to all market players, as long as there are no financial or safety reasons to refuse them.

Gull has one terminal in Mt Maunganui but the lack of access to the Marsden Refinery has previously made it difficult for Gull to enter further flung parts of the country.

Bodger said the same rules would apply to Gull but 'to my knowledge over the last 14 years with Gull, anybody's who's asked for commercial supply who's been able to pay for it, we've never said no. Whereas my competitors can't say that.'

NPD said it was a 'major gamechanger'.

'NPD has already implemented one of the Commission's key recommendations, adding the price of premium grade fuels to pricing pylons and the majority of our retail sites. We are working to get the remainder done as quickly as possible. We are more than happy to display the pricing for further clarity for our customers,' said chief executive Barry Sheridan.

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