The Government’s long-signalled market study into the retail fuel market will begin on Wednesday.
The decision was announced by Commerce Minister Kris Faafoi and Prime Minister Jacinda Ardern at the Monday post-Cabinet news conference.
“New Zealanders deserve peace of mind that the price they’re paying at the pump is fair,” Ardern said.
“At the moment we can’t definitively say whether that is in fact the case across New Zealand so this is a market that most certainly warrants a full investigation,” she said.
The study will be the first conducted after the Commerce Act was amended to allow the Commerce Commission to conduct market studies, bringing its powers up to par with its international peers, such as Australia’s ACCC.
Ardern told media in October that a market study into the retail fuel market would be the first study to be conducted once the Commerce Act amendments were passed. The announcement was made in the wake of growing complaints over the rising cost of fuel, some of which is blamed on the Government’s increase to fuel excise tax and the regional fuel tax in Auckland.
At the time, Ardern said New Zealanders were being “fleeced” by big oil companies.
“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.”
But fuel companies pushed back against that assertion. Many suppliers considered 2008 margins to be unsustainable and a fuel market study undertaken by MBIE in 2017 said a reason for high margins could be prices recovering from unsustainably low levels after the entry of Gull and Challenge into the petrol market in 1998 led to a decade of fierce price competition.
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.
But the MBIE study was hampered by the non-cooperation of two companies, Mobil and Gull, which did not surrender full information to the inquiry.
The new legislation means the Commerce Commission will be able to compel companies to surrender all information they require.
Bad timing…
The fuel market study has come at at an awkward time. After rocketing up, the price has fallen dramatically since Ardern announced a market study would be conducted.
This is mainly a result of crude oil prices falling. Two global oil benchmarks, North Sea Brent and US light crude had their weakest month in more than ten years in November, falling more than 20 percent as a result of global supply outstripping demand.
This has fed through to lower petrol prices in New Zealand.
But prices could easily tick up again. OPEC, a cartel of oil producing countries, and Russia are expected to announce this week that they will cut production, which will likely impact crude prices.
News that the US and China have agreed to a temporary ceasefire in their trade war also saw the price of oil surge.
But the banks…
Other markets, like supermarkets and banks, which this year posted record profits could also be in the line for a market study, but the limited funding provided to the Commerce Commission to conduct the studies mean these could be at least another year away.
Faafoi said putting the retail fuel market first was about public interest.
“Simply, it’s in the public interest to ensure people and business aren’t paying too much for fuel,” he 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.”
