Management | Market Forces
Getting pumped The Fuel Industry Act: What it entails and why it matters By Claire Wright
It’s no secret that South Islanders, Cantabrians in particular, are used to the fuel industry price gouging them compared to the rest of the country. But it’s not only a Canterbury problem – New Zealand wide, Kiwis are getting fleeced at the pump. We’re faring worse than a vast majority of our OECD counterparts – in the March 2019 quarter, New Zealand had the third highest pre-tax premium petrol and diesel prices in the OECD. The Commerce Commission notes the extra margin fuel companies earn on premium petrol doesn’t actually reflect cost differences between premium and regular petrol. And the new Fuel Industry Act tackles this and much more. Hon Dr Megan Woods, Labour’s resident fixer and Minister of Energy and Resources, led the charge for the Fuel Industry Act. This was in response to the findings uncovered by the Commerce Commission, New Zealand’s regulatory body that enforces competition and fair market practices for consumers, businesses and markets.
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Greater competition is likely to have a material impact on competition at the wholesale level, which will filter down to the retail market and prices on the forecourt.
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“The most significant problem that the Commerce Commission found was the lack of an active wholesale market in New Zealand.
"This is the market in which suppliers like BP, Mobil, Z Energy and Gull supply fuel to resellers like Waitomo and NPD. The lack of activity in this market limits price competition at the retail level in New Zealand,” Megan says. It doesn’t stop there. After several studies, the Commerce Commission uncovered several key findings: • Regional differences in retail fuel prices aren’t all explained by cost differences • Discounting doesn’t compensate for higher petrol prices • Premium petrol margins have grown faster than regular petrol and aren’t all explained by cost differences • Over the past decade, many fuel companies seem to be making “persistently higher profits”.
Fuel Industry Act: the breakdown
Benefits to Kiwis nationwide
“This legislation is particularly important to South Islanders, who know about having to pay over the odds for fuel.
At the time of the Commerce Commission's report, the South Island faired unfavourably compared to the North Island. Since then, there have been some improvements, and the Act is expected to bring more by shaking up the industry.
“The Act’s purpose is to promote competition in fuel markets for the long-term benefit of end users.” The Fuel Industry Act will address these problems by introducing the following, Megan explains:
“Greater competition is likely to have a material impact on competition at the wholesale level, which will filter down to the retail market and prices on the forecourt.
“By getting the premium fuel prices also displayed on the price board we expect that this will sharpen the price of premium fuel.” An oligopoly like this has been unseen in New Zealand, and giving regulatory agencies the power to properly hold unfairly powerful markets like this accountable is the first step to enacting change.
“The Government provided the Commerce Commission with the power to undertake market studies so that it can test whether there • A new regime requiring the supply of fuel from “A more competitive wholesale market means are competition problems in markets, including fuel terminals to competitors at transparent that low cost brands like Gull, Waitomo and NPD whether there are oligopolies of this kind. wholesale prices (terminal gate pricing) will be able to access fuel cheaper and in turn offer cheaper fuel to consumers. “The retail fuel market study is an example • A regime governing wholesale contracts to ensure that these are fair and promote “This will force the other retailers to adjust their of how the Commission has identified a clear problem, and recommended solutions, which competition prices, or lose customers. the Fuel Industry Act addresses.” • Requirements for the clear display of prices “In addition, some of the consumer information for retail fuel consumers, and To read more about the Fuel Industry Act, visit: changes we are making will also support more www.legislation.govt.nz. competition between brands. • Requirements for the industry to collect, store and supply information, to track the performance of the new regime. The Act addresses the lack of clear information concerning premium petrol prices by requiring retail petrol sites to display the price of premium fuel. In addition, the Act allows for regulations to ban display of discounted retail prices – such as price after a loyalty or rewards card – if the real price becomes confusing for customers. On top of that, these regulations will allow government agencies to collect information on wholesale and retail fuel prices. Regulations will set out what information needs to be collected by the industry – it will require the industry to either disclose vital information regularly or on request to the Commerce Commission or the Ministry for Business Innovation and Employment (MBIE).
8 | September/October 2020 www.canterburytoday.co.nz
