Govt confirms market probe into fuel retailing

Business

The Commerce Commission will have a year to do a market study on the retail fuel market; more industry probes to follow

3rd Dec 18, 4:00pm by Jenée Tibshraeny

The Government has confirmed the Commerce Commission will have a year to do a market study on the retail fuel market.

Prime Minister Jacinda Ardern in early October announced the Government was fast-tracking the passing of the Commerce Amendment Bill, to enable the country’s competition watchdog to do market studies on selected industries.

Ardern said the retail fuel market would be the first batter up.

The Bill was passed at the end of October, and on Monday Ardern and Commerce and Consumer Affairs Minister Kris Faafoi made their selection of the retail fuel market official.

They said the Commission would provide further information about the process and would be required to publish a final report by December 5, 2019.

According to the terms of reference, matters to be considered in the study may include, but are not restricted to:

the structure of the industry
the extent of competition at the refinery, wholesale and retail levels, including the role of imports
any factors that may hinder competition between industry participants
the conditions for entry by potential competitors, including independent suppliers, and/or the conditions for expansion
whether wholesale and retail price and service offerings of petrol and diesel are consistent with those expected in workably competitive markets
features of retail petrol and diesel markets that are not in the long-term interests of consumers

“Simply, it’s in the public interest to ensure people and business aren’t paying too much for fuel," Faafoi said.

"There are existing indications of competition problems in the retail fuel market that are of concern to me, such as the more than doubling of petrol and diesel importer margins over the past decade.”

He said fuel retailing was hugely important to consumers and to our economy, given the extent to which we rely on fuel and the size of the market, with around six billion litres of petrol and diesel consumed for land transport use annually.

“The Commerce Commission will be undertaking a full and thorough analysis into competition in the retail fuel market. This will enable us to better understand the market conditions and determine whether consumers’ interests are being protected at present, and if not, what action needs to be taken.”

National’s Commerce and Consumer Affairs spokesperson Brett Hudson has responded to the announcement, saying: “Today the Government has confirmed it will take no action on fuel prices despite the fact it will take the Commerce Commission at least a year just to report back – and that’s after the inquiry was delayed by months in the first place.

“And even then there’s no guarantee this study will do anything to lower fuel prices.

“Meanwhile petrol prices remain high, albeit slightly off record levels, and New Zealanders are being forced to pay too much at the pump.

“And we know that by the time the Government has received the report and decided how to respond it will have become clearer who is doing the fleecing since it plans to impose two more 4 cents per litre hikes in both 2019 and 2020. That’s on top of this year’s 4 cent hike and the 11.5 cents per litre Auckland regional fuel tax...

“The Government should axe its fuel taxes and put a halt to any new ones to provide Kiwis with the immediate price relief they deserve.”

Angst over high fuel prices hit a high in October, as petrol prices went up by 40 cents a litre in six weeks. Since then, however, prices have dropped.

Milford Asset Management Portfolio Manager David Lewis maintains prices are likely to fall further in time for the summer holiday season.

“I think, if you look over the next few weeks, prices will continue to decline by another 10 cents or so. In general, I’d say that the big swings in price we’ve experienced in the last couple of months – I don’t expect that level of volatility to continue," he said.

“And we don’t expect that we’re going to get back to prices as high as what we saw in September when they reached $2.40 or $2.50 per litre…

“From an investor perspective, there is cause for concern and the reason is that this very sharp fall (more than 20% over a 6-week period) is an indicator of a softness in global demand – a softness in the global economy.”

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53 Comments

by Nzdan | 3rd Dec 18, 4:27pm 1543807628

I wonder if they'll discover the real reason why fuel prices are so high in New Zealand is much closer to home than the retailers.

by Ludwig | 4th Dec 18, 3:06pm 1543889190

The fact that we pay at least $50 per tankful for a medium vehicle in taxes will be conveniently swept under the rug...I mean, report.

by Pragmatist | 4th Dec 18, 3:17pm 1543889840

And all that money and more besides get spent on roading and transport. Would you prefer cheap gas and $100/1000kms road user charges instead?

by Believer1980 | 4th Dec 18, 5:18pm 1543897112

I have no issue with taxing fuel to pay for related infrastructure. However, why the tax must be a percentage of the market price of the fuel (by adding GST on the price, if the incentive is to fund the construction and maintenance of the underlying infrastructure)? when fuel price is doubled, does it mean that road construction and maintenance costs will also double?
I also dont understand why you have to pay GST for when you buy private health insurance, or pay privately for health/eduction. Surely, if there is universally funded services, and you are not using them, you are benefiting the government. They can make those services 15% cheaper, thus encouraging few more people to forgo the public service, reducing pressure over those services. But pure tax grabbing mentality always win (If you put me in government I will never want less money for the government, always more).

by ngakonui gold | 3rd Dec 18, 4:38pm 1543808331

If,as the PM says we are being fleeced,why will it take a year?
Another year of pain is looming if she is correct.
IMO we aren't getting fleeced.

by sharetrader | 3rd Dec 18, 4:52pm 1543809131

great timing, just as they start falling again as the dollar has gone up from its lows and oil has gone down
so petrol prices will fall anyway.
i wonder if national will jump up and down about the wasted money on the enquiry as petrol prices are linked more to what happens offshore than here

by PropertyPrices2Fall | 3rd Dec 18, 5:07pm 1543810068

Nope, it'll prove that Mr bridges is either dumb to think the rise was due to the recent taxes or cunning enough to make people believe it was the case

by bilbo | 4th Dec 18, 11:18am 1543875524

Predictions for the next few years:
Justice Judith will do her own inquiry into fuel prices right around a month before election time. The poor will keep firing kids out of their baby holes incentivised by the govt's Cash-4-Kids degeneracy schemes. The land bankers will keep on banking. The councils will keep on raising rates above inflation. The smart young people will keep on leaving. The skilled chefs and student Jimmy Grants will keep coming until Australia shuts the back door. Labour will open their 17th working group / committee / inquiry team / investigation / commission / waffle-maker group while Jacindy-Gayford-Ardern-Aroha is home with bubs. The middle class will pay for it all or put it on the tab.

by spinach1 | 3rd Dec 18, 5:25pm 1543811130

This is the clue here:
"There are existing indications of competition problems in the retail fuel market that are of concern to me, such as the more than doubling of petrol and diesel importer margins over the past decade.”
It starts when deregulation allows the fuel companies to own and operate the retail outlets. They can claim that they have low retail margins and simply use the old practice of the offshore parent company making the bulk of the profit. Local competitors can only get product at the same jacked up "wholesale" price as the big boys charge themselves. Plausible deniability right there.

by Sluggy | 3rd Dec 18, 6:15pm 1543814156

Surely they - ird - should be looking hard at transfer pricing with these sorts of outfits. And pretty much any wholesale / retail business here that has a manufacturing parent offshore ...

by Roger the lodger | 3rd Dec 18, 5:50pm 1543812603

Long overdue but the elephant in the room is the supermarket cartel surely. This is easily fixed by splitting New World and PaknSave - with three competitors you have a functioning market.
The naive Commerce Commission made a huge mistake when they created a duopoly by letting Progressive buy Woolworths - and they need to make amends asap.
Plus changes to the RMA to make supermarkets a permitted activity in rural areas and industrial zones - then a new operator (Aldi/Lidl?) could set up here at low cost.
Easy fixes but no doubt Labour/Greens will have some ideological reason no to do it - much more important than getting living costs down for their constituents....

by Sluggy | 3rd Dec 18, 6:13pm 1543813989

Dont forget the building supplies cartel

by J.C. | 3rd Dec 18, 10:58pm 1543831113

Economies of scale is an issue for NZ retail, particularly for discounters like Aldi. Don't expect Aldi to move in unless they can capture good volume / value share across their categories quickly. No doubt they probably could on the Shore or South Auckland or suburban Chch. They're caning it n Australia as disposable incomes are stretched to the limit.

by bilbo | 4th Dec 18, 11:23am 1543875839

Another elephant in the room is all the hoops these days. Every fuel station and supermarket have loyalty cards customers need to use to get the normal retail price. Worse still they bundle discounts together - so you have to shop at supermarket A to get a discount at petrol station B.

They sell the purchasing data onto god knows who in some kind of secret black market. Your health insurance company, bank, IRD etc know when you bought that pregnancy testing kit at the supermarket.

by mfd | 4th Dec 18, 1:04pm 1543881878

I don't know how applicable this is to other parts of the country, but in Christchurch the cheaper fuel stations are consistently cheaper than the main brands after applying their discounts (even the 10c off at Z). Whether you choose to buy into the loyalty scheme is optional (in an area with low cost options), we just shop elsewhere and avoid the hassle, and save money.

by JB | 4th Dec 18, 5:24pm 1543897444

As my wife shops at both New World & Pack and Save - very clear they serve two entirely different market segments and already have many significant price differences.

Splitting them off would make near zero difference IMHO.

Comparing New World with the many Australian supermarkets we have visited - the standards here are very very high and I believe they offer exceptional value to consumers.

by bilbo | 5th Dec 18, 9:22am 1543954930

Recently Pak'n'Save have been doing more frills. Club cards to track consumer purchasing. Bundling free (disgusting) coffees and fuel discounts with large spends.

It's certainly not the everyday low prices for everyone model we used to see. The one constant is the half rotten vegetables, that will never change.

by The_4th_estate | 3rd Dec 18, 10:19pm 1543828741

Due to our small market its difficult to sustain more than two or three major players across a given sector, it certainly doesn't sustain competition thats for certain.

by OnTick | 4th Dec 18, 1:00am 1543838421

Hey, I've got an idea. Let's put a stop to local extraction of oil and gas, as that will definitely make it cheaper for the consumer, while reducing our carbon footprint, current account deficit, pesky low wage jobs and subsequent measly tax take and royalties.

by Foyle | 4th Dec 18, 11:27am 1543876052

Think you could be on to something here, and even if it achieves none of that imagine all the wonderful publicity we could garner for dear leader for a couple of days at the bargain basement cost of just a few billion a year in perpetuity.

by Houseworks | 4th Dec 18, 7:13am 1543860837

With AA smart fuel card, "petrol cheap and sometime free". Haha lol, but more effective than waiting for a study that takes a whole year. The so called fleecing is more likely going to be used to pull the wool over....

by MikeM | 4th Dec 18, 7:14am 1543860859

Huge irony in this investigation as it's actually govt petrol taxes and not retail margins stinging the public of NZ.

by JimboJones | 4th Dec 18, 10:49am 1543873774

The fuel excise portion includes:
63.024 cents - National Land Transport Fund
6 cents - ACC Motor Vehicle Account
0.66 cents - Local Authorities Fuel Tax
0.3 cents - Petroleum or Engine Fuels Monitoring Levy
So almost all of the tax goes to the National Land Transport Fund which then all goes into building roads. Is that really 'stinging the public of NZ'?

by dictator | 4th Dec 18, 7:55am 1543863304

The Government want to investigate fuel prices and then increase it's own tax which is getting close to 50% of the price at the pump. The cost to tax petrol is next to nothing so it's all profit for the Government. Given that we are in a substantial budget surplus what is the reason for more tax, they haven't given one. Then with the additional tax income from whatever version of the capital tax the Government will have even more income.

So what is the purpose behind these increased taxes? The Government hasn't given a reason for it and there does not appear to be a purpose justifying it.

by imhenry | 4th Dec 18, 8:00am 1543863651

Yes there is. Their ability to give more hand outs to their voters.

by rastus1 | 4th Dec 18, 8:15am 1543864539

More tax is inevitable, the carbon tax will be the biggie. This tax properly implemented is now highly likely. The goal is reduce emissions, so a tax it will be.

Planning on increased petrol would be wise - and rabbiting on about climate conspiracy is not gonna help. Planning is about what is likely, not how you feel about it.

by dictator | 4th Dec 18, 9:25am 1543868718

Will a carbon tax on fuel actually provide a sufficient reduction in emissions? Will we even be anywhere near hitting our targets?

From my perspective it is more about Government revenue rather than a genuine environmental concern.

e: Also it's necessary to blame the oil industry even though they are providing what consumers demand. It's simply a diversion from the Government.

by rastus1 | 4th Dec 18, 10:57am 1543874222

..worked for cigarettes.

by mfd | 4th Dec 18, 12:59pm 1543881557

It's a happy spot where the Government can raise revenue by taxing something which needs to be discouraged anyway. Even if you don't care about climate change, the pollution and subsequent health issues caused by petrol and diesel engines justifies a sin tax. Slow and steady tax increases will gradually increase the attractiveness of alternatives (bikes, walking, public transport, electric vehicles) without causing too much of a sudden shock.

by dictator | 4th Dec 18, 1:32pm 1543883525

My environmental concerns aren't really a part of the discussion. There appears to be a complete lack of environmental concern by the Government. They are pitching a tax for the sake of a tax, or so it appears from the article.

by mfd | 4th Dec 18, 1:45pm 1543884304

Which bit of the article says that? The only mention I see of tax is in the National response, Labour are talking about the ComCom study, not justifying potential taxes.

by Pragmatist | 4th Dec 18, 2:27pm 1543886848

Close your left eye and re-read the article with only your right eye. Then you'll understand ;)

by waymad | 4th Dec 18, 1:47pm 1543884452

Except when the organically grown vegies fail to arrive at the supermarket, because the B-trains have been taxed out of existence and the farmers cannot use their electric harvesters because they haven't been invented yet, and there is a serious rural shortage of hand harvester personages, and two-thirds of the crop was devoured by birds and insects while waiting for them.

Then we have ourselves a 'yellow vest' sequence, as the Peasants really Revolt.

Good luck with a 'slow and steady tax increase'......history tells us it tends more to the 'Sudden Shock'.

by mfd | 4th Dec 18, 2:01pm 1543885285

The alternative being wait until market forces do the same thing as supply reduces/becomes more expensive to extract? Carrying on as we are isn't an option, we just have to choose how we want to transition. This way, if things do become unpleasant at least the government can reduce taxes to compensate for rising prices.

by bob cotton | 4th Dec 18, 9:30am 1543869016

Spot on. I rest my case on the vacuous half wits running the country.

by JimboJones | 4th Dec 18, 10:52am 1543873935

"Given that we are in a substantial budget surplus what is the reason for more tax, they haven't given one"
I guess it is because they need to spend more on roads. And it makes sense for the people who use the roads the most to pay the most, rather then using general tax. Almost all of the fuel excise goes directly to the Land Transport Fund - not the government coffers.

by dictator | 4th Dec 18, 11:05am 1543874717

Building more roads doesn't really fit with the environmental concerns described above your comment.

by Sluggy | 4th Dec 18, 2:05pm 1543885546

Electric cars dont yet fly. we still need roads.

by ddporter | 4th Dec 18, 9:12am 1543867928

National would never have done this, they are too busy protecting themselves from scandal, not thinking of the good of NZ, a good example is the leaking of Simon Bridges expenses, WHY is he so worried and the way Ross
was treated by the National party

Bridges is not fit to be prime minister, he cannot be trusted, many people think the same

by Battinz | 4th Dec 18, 9:17am 1543868279

He's the nightwatchman, but National had better hope he doesn't try and bat too far into the last day.

by Davo36 | 4th Dec 18, 9:16am 1543868204

Don't look there, look over here!

A year to investigate petrol prices? A year? Surely this can be done in a month?

But they want the public to just accept for now that something is being done, and in a year's time everyone will have forgotten about it.

by JB | 4th Dec 18, 5:32pm 1543897924

The margin increase - primarily in the South Island began after the Caltex acquisition.

This was a really dumb call by the ComCom leaving one player with over 50% market share.

by Carlos67 | 4th Dec 18, 9:54am 1543870443

Talk about kicking the can down the road. I heard its going to cost $1.5M to do this investigation when everyone already knows the outcome, nothing will change at the pump.Another year of being "Fleeced" and a bit of false hope thrown in to ease the pain.

by ngakonui gold | 4th Dec 18, 10:42am 1543873335

Maybe while the Commerce Commission are investigating the fuel price they can also investigate the price of the vehicles we put the fuel into.

by Boatman | 4th Dec 18, 11:36am 1543876589

They would do far better to investigate the costs and structure of the building supply industry , where we are really being taken for a ride

by John | 4th Dec 18, 12:28pm 1543879686

This is the same Commerce Commission that allowed Z to buy Caltex and give Z 50% market share, shouldn't take too long to use the findings from that decision to find that this would have no material market impact.
CC seems to be a patsy as opposed to a valid government adviser. YOu would have to question on what information did they approve the Z Caltex merger?

by Nzdan | 13th Dec 18, 6:48pm 1544680122

Doesn't the Government have a 50% stake in Z Energy? Maybe that's why it was okay.

by Pragmatist | 13th Dec 18, 7:36pm 1544682995

They did have a stake, don't think it was 50% by the time they bought Chevron, and shortly after that NZ super and Infratil both announced sell downs, infratil selling all holdings and NZSF down to 1.5% of the company. NZ super fund made about a billion dollars from the deal overall.

by Nic Johnson | 4th Dec 18, 1:18pm 1543882719

I've always been amazed at how many petrol stations there are in New Zealand. We must have one of the highest ratios of petrol stations per capita in the world!

by Stuart Mason | 4th Dec 18, 2:28pm 1543886923

Given that the Ministry of Business Innovation and Employment, published a Fuel Market Performance Study last year, is it too much to expect that this enquiry will use / add to this information to save some money? Of course, as it was commissioned by the other lot, I suppose that would be too much to ask, but it would be nice to be proved wrong.

by kane02 | 4th Dec 18, 5:13pm 1543896825

pffft. I'll put a fiver on the fact that nothing will come out of this. Waste of $1.5m tax payer funds. Incidentally it appears the report is timed to take some heat off the government until next election. Very cynical imo

The ComCom resources would be better utilised looking into the supermarket cartel, and building supplies companies.

by kane02 | 4th Dec 18, 5:25pm 1543897546

when, if ever has the ComCom actually broken up a monopoly, or duopoly that they sanctioned? They appear to be political puppets.

by KH | 5th Dec 18, 7:56am 1543949809

It says "retail". Thats nuts for an investigation. They should be looking at the entire supply chain from the wellhead.
In particular the Northland refinery - jointly owned by the major companies - which gives endless scope for collusion and concealed transfer pricing.