Energy Minister questions Z Energy's public disclosures about fuel margins

Friday, 15 September 2017

Energy and Resources Minister Judith Collins told Z Energy chief executive that a claim made by the company was 'misleading and incorrect' and raised concerns that it released information to the NZX which her office had warned was factually wrong.

Energy Minister Judith Collins has questioned whether New Zealand's largest petrol company has made inaccurate disclosures in its market statements and financial reports.

The claims were made in a terse exchange between Collins and Mike Bennetts, chief executive of Z Energy, released under the Official Information Act.

Z Energy chief executive Mike Bennetts told Collins a report into fuel margins was 'based on a very poor level of understanding of this industry'.

Bennetts apparently told Collins during a meeting that he took her public statements with a 'grain of salt'. In a letter he largely dismissed a fuel market study Collins ordered.

Collins responded by accusing the company of releasing information to the NZX which her office had pointed out was wrong, and of making 'misleading and incorrect' statements to her.

Z Energy also owns the Caltex brand and distribution rights to that network in New Zealand. The company has a market capitalisation of close to $3 billion.

On September 13 Z Energy made an unscheduled release of information about its margins, in an attempt to back up its claims that the margin it has been making on fuel in recent months has been far more steady than government data has suggested. This graph is lifted from the Z Energy release.

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Within months of taking the energy portfolio, Collins vowed to 'get to the bottom' of fuel rising margins, ordering officials undertake an inquiry, which was released in July.

The study, led by the Ministry of Business, Innovation and Employment (MBIE), found features which may not be consistent with a competitive market, and that higher costs in areas such as Wellington were not explained by higher costs in the areas.

Since then, Collins has accused the fuel industry of 'cynical' price moves. Official data suggests margins collapsed in the weeks before the study was released, but recovered strongly since.

Z Energy has become increasingly vocal in its dispute of official data on margins, which is released weekly by MBIE.

On August 8, Bennetts' wrote to Collins disparaging the fuel market study on the grounds that it did not come close to fulfilling its terms of reference.

'The report was incomplete in terms of both content and participation; quality was compromised by immovable deadlines; it was based on a very poor level of understanding of this industry and almost exclusively failed to address the study's own terms of reference,' Bennetts wrote.

Collins replied that she was 'surprised' that during a meeting he had mentioned taking her comments with a 'grain of salt'.

'I can assure you that any comments I make the the public or media are, without exception, my genuinely held views and position.'

While she said information released by Z Energy was extensive, it had created confusion. Bennetts' letter compared the study's findings on retail margins to Z margins on all the products it sells.

This meant Z was comparing the margin on petrol to the margin on everything from bitumen and jetfuel to chocolate, but presenting the comparison as if it were like for like.

'This statement is misleading and incorrect on a number of levels and borders on the disingenuous,' Collins said.

Z Energy's various claims about its margins on fuel did not seem consistent across its disclosures, Collins said.

'Neither the net margin increase…stated in your letter nor the …net margin increase stated in your submission correspond to you publicly reported financial statements.'

Collins expressed 'concern' about Z's media statement on the study. Despite her office pointing to 'a number of factual inaccuracies' in the draft, these were not incorporated in a statement to the NZX.

'Given the importance of accurate disclosure to the market - as raised by Z Energy with my office on several occasions - I was concerned that you took this stance.'

Collins said on Friday that once she was aware a company was making incorrect claims she felt obliged inform to it. 'If I didn't I would be remiss in my responsibility.'

The statements she alleges are wrong were released by Z on July 4 in a statement to the NZX and media, after being shared with her office.

Bennetts said the company would respond in detail to Collins concerns when it makes an official response to the fuel market study on September 30, but he refuted claims of inaccuracy in its disclosures.

'We are 100 per cent confident that the numbers that we have given to MBIE add up to the numbers that we've disclosed to the market because it all comes from the same data source,' he said.

Bennetts' letter raised the prospect of calling for the Commerce Commission to undertake market study under pending legislative changes, something Collins has warned the industry could face.

But Bennetts said on Friday that while the board had discussed making the public call, it had decided to make no comment on the issue at this stage.

Collins-Bennetts by Hamish on Scribd