Government to force petrol companies to promote greater competition

Author
Newstalk ZB, NZ Herald,
Publish Date
Thu, 27 Feb 2020, 6:57PM
The Government has accepted most of the Commerce Commission's recommendations. (Photo /. 123RF)

Government to force petrol companies to promote greater competition

Author
Newstalk ZB, NZ Herald,
Publish Date
Thu, 27 Feb 2020, 6:57PM

The Government is forcing changes on the petrol industry to promote greater competition and bring prices down at the pump.

Fuel companies will be forced to disclose the prices at which they will buy and sell fuel to each other in a bid to drive competition in all parts of the country.

If that is not enough to create a healthy wholesale market, giving retail upstarts such as Gull and Waitomo access to cheaper fuel across the country, the Government has signalled it could set the terms itself.

On Thursday, Energy and Resources Minister Megan Woods released the Government's response to the Commerce Commission's market study into the retail fuel market, which was released in December.

"Since the report's release in December, we've moved quickly to act on the Commission's recommendations. We're introducing changes that will promote greater competition in the fuel market at the wholesale level and lead to lower prices on the forecourt for motorists," Woods said.

"We know that the cost of fuel is significant for households and businesses. The Government is giving this Bill priority and we will pass it into law later this year.

"The Commission's report found that companies are making high profits due to a lack of competition in the industry. The report confirmed our concerns that motorists are paying higher prices for petrol and diesel than could be expected in a competitive market."

As well as making visible changes, such as forcing fuel companies to show the price of premium fuel prices on forecourt price boards, the Government is taking steps to try to create a healthy wholesale fuel market.

Woods said she had also written to the fuel companies urging them to take pre-emptive action, but Thursday's release claims that if the industry does not manage to deliver a competitive wholesale market, the Government will take steps to force it to.

According to Woods, the Government will introduce legislation to enable a terminal gate pricing regime.

This would require suppliers of fuel from storage terminals - the vast storage tanks situated near ports around the country - to set a daily spot price at which they would sell agreed quantities on demand to buyers.

Legislation to enable this would be passed "mid-year" Woods said.

The Commerce Commission also recommended that the Government should give itself powers to force competition into the market if the wholesale regime did not deliver competitive outcomes in a reasonable period of time.

This could include forced arbitration between companies or even regulated prices.

Woods' document said the Government supported giving itself the regulatory powers but these would be introduced to the legislation "at a future point" without giving details.

Woods said the changes to the wholesale market "would see smaller players such as Waitomo and Gull gain access to cheaper fuel".

This "will mean other retailers will need to adjust their prices or risk losing customers".

Consultation with the industry is likely to take place in the coming weeks, Woods said.

The Commerce Commission's report, ordered by Prime Minister Jacinda Ardern in 2018 as petrol prices inched towards $2.50 a litre, found that in parts of the country fuel companies were making hefty profits due to a lack of competition.

At the time, Ardern claimed measures would be in place which would boost competition and provide relief to motorists by early 2019.

When the report was released, Commerce Minister Kris Faafoi claimed that taking up the recommendations of the commission could drive down prices by at least 18c a litre, based on anecdotes about the price falls observed in certain parts of the country when a new player entered the local market.

Woods said the Government had acted quickly to take up the recommendations of the Commerce Commission.

"We're introducing changes that will promote greater competition in the fuel market at the wholesale level and lead to lower prices on the forecourt for motorists," she said.

"We know that the cost of fuel is significant for households and businesses. The Government is giving this Bill priority and we will pass it into law later this year."

Independent of any steps from the Government, motorists may see relief at the pump soon due to international factors.

In recent days, oil prices have dropped sharply due to expectations of soft demand as a result of the restrictions put in place as a result of Covid-19, with West Texas Intermediate, the US benchmark, falling below US$50 a barrel for the first time in more than a year.