4 minute read
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 Fuel Industry Act: the breakdown and fair market practices for consumers, businesses and markets. “This legislation is particularly important to South Islanders, who know about having to pay Greater competition is likely “ over the odds for fuel. “The Act’s purpose is to promote competition in fuel markets for the long-term benefit of end users.” to have a material impact on The Fuel Industry Act will address these competition at the wholesale problems by introducing the following, Megan explains: level, which will filter down to • A new regime requiring the supply of fuel from the retail market and prices fuel terminals to competitors at transparent wholesale prices (terminal gate pricing) on the forecourt. ” • A regime governing wholesale contracts to ensure that these are fair and promote competition “The most significant problem that the Commerce Commission found was the lack of • Requirements for the clear display of prices for retail fuel consumers, and an active wholesale market in New Zealand. • Requirements for the industry to collect, "This is the market in which suppliers like BP, Mobil, Z Energy and Gull supply fuel to resellers store and supply information, to track the performance of the new regime. like Waitomo and NPD. The lack of activity in The Act addresses the lack of clear information this market limits price competition at the retail concerning premium petrol prices by requiring level in New Zealand,” Megan says. retail petrol sites to display the price of It doesn’t stop there. After several studies, premium fuel. the Commerce Commission uncovered several In addition, the Act allows for regulations to ban key findings: display of discounted retail prices – such as • Regional differences in retail fuel prices aren’t all explained by cost differences price after a loyalty or rewards card – if the real price becomes confusing for customers. • Discounting doesn’t compensate for higher petrol prices On top of that, these regulations will allow government agencies to collect information on wholesale and retail fuel prices. • Premium petrol margins have grown faster than regular petrol and aren’t all explained by cost differences Regulations will set out what information needs to be collected by the industry – it will require the industry to either disclose vital information • Over the past decade, many fuel regularly or on request to the Commerce companies seem to be making Commission or the Ministry for Business
“persistently higher profits”. Innovation and Employment (MBIE). 8 | September/October 2020 www.canterburytoday.co.nz Benefits to Kiwis nationwide 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. “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. “A more competitive wholesale market means that low cost brands like Gull, Waitomo and NPD will be able to access fuel cheaper and in turn offer cheaper fuel to consumers. “This will force the other retailers to adjust their prices, or lose customers. “In addition, some of the consumer information changes we are making will also support more competition between brands.
“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 are competition problems in markets, including whether there are oligopolies of this kind. “The retail fuel market study is an example of how the Commission has identified a clear problem, and recommended solutions, which the Fuel Industry Act addresses.” To read more about the Fuel Industry Act, visit:
