Petrol companies co-ordinate prices in Wellington and the South Island - commissioner

Friday, 10 June 2016

Once it takes over the New Zealand assets of Chevron, Z Energy will supply fuel to half of the petrol stations in New Zealand.

A top competition expert says petrol companies co-ordinate pump price changes, especially in Wellington and the South Island, and it will get worse when Z Energy takes over Caltex.

At the end of April the Commerce Commission cleared the way for Z Energy to buy the New Zealand assets of Chevron - which markets fuel as Caltex - creating a single company supplying half of all petrol stations in New Zealand.

Dr Jill Walker, who headed the mergers team for Australia's competition watchdog, joined the Commerce Commission in December.

While three of the four commissioners assessing the deal decided it would not substantially lesson competition, Dr Jill Walker, a former commissioner of Australia's ACCC, warned fuel retailers already co-ordinated price movements, and this would get worse without an independent Chevron.

'In my view, the proposed merger would be likely to entrench that [price] co-ordination and see co-ordination occurring more completely and more quickly than it does presently,' Walker warned.

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'Even small delays in a price change can result in significant savings for consumers and, as such, I am not satisfied that future competition would not be substantially lessened.'

While it was known that the competition watchdog's decision to allow Z to buy Caltex was not unanimous, Walker's dissenting voice was only published on Friday, buried at the bottom of a 120-page document.

She argued that petrol companies moving in unison boosted profits and was a sign that competition could be more aggressive.

The 'leader-follower' model would be more deeply entrenched and happen faster if Chevron was taken out of the market.

The pattern was more significant in Wellington and the South Island, the two areas where fuel discounter Gull does not have operations, and Walker doubted Gull would expand to increase competition in those areas.

While there was no sign of an explicit agreement between the fuel companies - something which would be highly illegal - the co-ordination was 'tacit'.

Petrol companies have long been accused of what Walker says.

Typically, when one of the four major petrol companies adjusts its national price, its rivals move to match it within hours.

In areas where Gull operates - largely the upper North Island but as far south as Masterton - prices are substantially cheaper than in Wellington and the South Island.

AA spokesman Mark Stockdale described fuel industry as 'matching' rather than co-ordinating, but agreed with Walker's observations that companies quickly followed each other on price.

'There's certainly an element of that going on…That is what we see,' Stockdale said, 'and having one company exit the market, that can't be good for competition.'

In a statement, Z Energy said the commission's ruling was that it was 'very clear that there is no evidence of co-ordination in the retail market'.

BP said New Zealand's retail fuel market was competitive.

'We will sometimes change our prices in different locations to ensure competitiveness in the market and this can lead to price variations even within similar geographies, but this is the nature of competition,' a spokeswoman said.