5 Dec 2019

ComCom recommends changes to fuel market to make it more competitive

9:53 am on 5 December 2019

The Commerce Commission has recommended changes to New Zealand's fuel market to increase competition and benefit consumers.

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Photo: 123rf

The competition watchdog has completed its year-long market study of fuel retailers, carried out at the request of the government because of concerns motorists are being fleeced at the pumps.

The Commission believes the core problem is that an active wholesale market for fuel does not exist in New Zealand.

"As a result of our study, we consider many fuel companies have been making persistently higher profits over the past decade than we would expect in a workably competitive market. For consumers, this means they are paying higher pump prices than could be expected," Commission chair Anna Rawlings said.

"There are indications that (fuel companies') returns have peaked and are stable. However, profitability is expected to remain high for some time and we are not convinced that the industry's experience of excess returns has come to an end under current policy settings."

It has made a series of interdependent recommendations to improve competition, mainly targeted at creating an effective wholesale market.

"The major fuel companies, Z Energy, BP and Mobil, share a joint infrastructure network which includes the Marsden Point refinery, coastal shipping operations and storage terminals at regional ports. They use this network to supply 90 percent of the nation's fuel through their own branded retail sites or via other distributors or resellers via exclusive long-term wholesale supply contracts. The only other fuel importer is Gull, with a terminal in Mt Maunganui," Ms Rawlings says.

"The combination of infrastructure sharing and restrictive supply relationships gives the major fuel companies an advantage. There is a reduced ability for importers to compete for customers of the majors and for distributors and dealers to obtain competitive wholesale supply terms."

The Commission has recommended introducing a Terminal Gate Pricing regime - based on the system used in Australia.

That would require all importers to offer a spot price at which they sell fuel to wholesale customers at storage terminals.

The second recommendation is to regulate wholesale supply contracts to allow better contractual freedom for resellers to compare offers and switch suppliers.

The Commission also made several recommendations to help consumers make better purchasing decisions.

These include regulations to require retailers to display premium fuel prices on price boards and fuel cap stickers to help consumers understand what grade of fuel their vehicle requires.

The Commission acknowledges that the industry has made some positive developments, including pay at the pump technology, the electrification of vehicles and the establishment of Timaru Oil Services, but they do not address the core problem it identified with the wholesale market.

The government will decide whether to act on any final recommendations the Commission makes.

Read the full report here:

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