Government

Govt runs with National’s fuel review idea

The Government has re-announced a National party market study into fuel pricing to deflect blame for high petrol prices, Thomas Coughlan reports.

Prime Minister Jacinda Ardern was flanked by Commerce Minister Kris Faafoi and Energy Minister Megan Woods as she announced the Government was "going to have to force the hand" of fuel companies and make them open their books using the market study powers contained in an amendment bill coming before Parliament.

Ardern said the Government would prioritise the Commerce Amendment Bill and hoped the legislation could be passed in the late-October sitting block of Parliament. 

The long-awaited amendments to the Commerce Act will allow the Commerce Commission or ministers to nominate a sector to be subject to a market study into anti-competitive behaviour. It brings the Commission's powers into line with similar bodies overseas such as Australia's ACCC.

Ardern said that once the legislation passed, she would nominate the retail fuel industry as a “priority area”.

MBIE data shows margins on fuel more than doubled since 2008.

She said the study was likely to report back early in 2019 and she would then “prioritise a response to it”

But the decision to initiate a market study was effectively made under the previous Government, which planned to initiate a study into fuel pricing following its own planned amendments to the Commerce Act.

A Cabinet Paper from last year notes then-Energy Minister Judith Collins asked for consideration of a market study into fuel pricing once the Commerce Commission was given a mandate to conduct such studies. 

The paper said Collins would, when the Commerce Act was amended, ask the Commerce Minister to consider “whether the Commerce Commission should undertake a further, competition-specific fuel market study using data which is comparable across companies”.

Arden versus big oil

The rising cost of fuel has become a political liability for the Government. It faced considerable opposition to its regime of fuel tax increases. It had to resort to putting the House into urgency to pass the regional fuel tax in June. 

The excise duty on petrol will increase by 10.5 cents per litre over the next two years. Auckland is subject to an additional tax of 10 cents a litre, although there is evidence that companies have spread the cost of the tax to other parts of the country where there is less competition. 

The taxes are designed to pay for roading and other transport infrastructure. 

Other factors have compounded the effects of the tax, particularly the declining value of the dollar, which now sits at 64 US cents, its lowest value in two years. 

At her post-Cabinet press conference, Ardern announced the proposals with forceful rhetoric designed to shift blame for price rises onto petrol companies, who she accused of excessive margins. She blamed several external factors for the high cost of fuel. 

“That represents a transfer of wealth from petrol consumers to producers to the tune of hundreds of millions of dollars a year”

“The international price of crude oil has risen almost 30 percent just this year — but that doesn’t tell us the full picture of what is going on in New Zealand,” she said. 

“In 2008 we had one of the lowest pre-tax costs in the OECD, today New Zealand has the highest pre-tax cost for fuel in the OECD”.

She used figures collected by MBIE to accuse the companies of being greedy 

“From 2008 to 2017 the margins importers were taking for themselves more than doubled,” she said. 

“That represents a transfer of wealth from petrol consumers to producers to the tune of hundreds of millions of dollars a year,” she said.

But Ardern’s dates were selective. Suppliers considered 2008 margins to be unsustainable. The most recent fuel market study undertaken by MBIE in 2017 said a reason for high margins could be prices recovering from unsustainably low levels. 

The entry of Gull and Challenge into the petrol market in 1998 led to a decade of fierce price competition. 

The MBIE study found that this period ended when Shell was acquired by Z Energy. Shell’s strategy had been to be slow in following the price increases of its competitors, while being quick to match their price cuts. This was abandoned in 2010, leading to a less competitive pricing regime. 

Mark Stockdale of the AA told Newsroom rising margins had been of concern to motorists.  

“There’s been rising concern about fuel company margins and whether they are fair and whether the increase in margin is due to increased profit,” Stockdale said. 

He said it was good news the Government had “fast tracked” the legislation so it could implement any recommended actions “sooner rather than later”. 

Just fumes 

The announcement of the market study into fuel pricing was in many ways a foregone conclusion. 

The 2017 study was hampered by two companies, Mobil and Gull, not surrendering full information to the inquiry as they were not required to do so. A market study undertaken with the Commerce Commission’s new powers would force companies to comply fully. 

“They haven’t opened their books up to us in the past, we’re going to have to force their hand,”  Ardern said. 

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