Government to probe fuel prices again
The government has asked the Ministry of Business, Innovation and Employment to further investigate fuel prices and is looking to increase the Commerce Commission's market studies powers by the end of next year after getting more information on the fuel market.
In July, a government-commissioned study found New Zealand's fuel market "may not be consistent with a workably competitive market" with retail margins increasing over the past five years while more expensive petrol in the South Island and Wellington wasn't explained by higher costs in those areas. The study’s authors said they couldn't definitely say that fuel prices in New Zealand were reasonable, and they had reason to believe that they might not be.
The government today released an update by MBIE which showed in a briefing to Cabinet from November, the ministry recommended the Government pursue further analysis through a Commerce Commission-led market study along with periodic updates from MBIE on the market. It said direct government intervention would be premature until a market study has been undertaken.
Commerce and Consumer Affairs Minister Kris Faafoi said he has asked officials to fast-track work to enable the Commerce Commission to undertake market studies, which would mean it could compel companies to provide information so the regulator can fully understand how markets are functioning.
"I’m aiming to get legislation complete and to have market studies powers in place by the end of 2018," Faafoi said. "The Commerce Commission also needs to be able to self-initiate these studies where they see that markets are not doing a good job for New Zealanders. Having thorough information and shining a light on a market enables us then as government to decide if we need to take any action."
In the meantime, MBIE will "monitor the market and explore options for regulatory interventions to enhance competition as required", Energy and Resources Minister Megan Woods said.
MBIE told Cabinet it has become increasingly concerned that consumers may not be getting the best outcomes, based on rising levels of importer margins since 2008, New Zealand’s move to being one of the most expensive countries in OECD for pre-tax petrol having been in the cheapest third nine years ago, and a rising spread in retail prices between Wellington and the South Island, and the rest of the North Island.
Petrol margins fell after deregulation in 1988, and again after Gull and Challenge entered the market in 1998, reaching a low in 2008 which suppliers considered unsustainable. However, they have been rising since then, MBIE said.
MBIE said it agreed that further examination of the downstream fuel sector is "a worthwhile next step", but didn't agree with another of the report's suggestions, which was the creation of a registry which would prevent major companies from seeing their competitors' market shares. The agency said it didn't yet see an effective way of developing a liquid wholesale market for petrol.
The agency suggested the government could consider direct market intervention, however, its suggestions for what that could involve and how it would work were redacted from the public version of the update.
The government's release this afternoon included submissions from Z Energy, BP Oil New Zealand, Gull New Zealand, and Mobil Oil New Zealand written after the study was released in July.
Z said it was "open to a conversation around the point of how to encourage a more liquid wholesale market" but stressed the importance of maintaining a commercial approach to the matter and protect the property rights of companies that invest in assets. The company said it "believes it can clearly demonstrate that its returns are fair and reasonable against international and domestic peer benchmarks", and MBIE's margin monitoring and OECD benchmarking data "are at times unreliable and misleading" and have contributed to industry scrutiny and misleading commentary.
Mobil said New Zealand is a very competitive market and changes to wholesale market structures would likely impose additional costs on the industry and consumers, and BP said it believes the market is competitive and it believes it receives a fair return for its investments, with no barriers to competitors investing in assets.
Gull said it has evaluated the option of building a South Island terminal several times in the past 10 years, but the value proposition wasn't as good in the South Island and they would need to recover costs from motorists.