27 Feb 2020

New bill targets wholesale reduction in fuel prices

5:24 pm on 27 February 2020

New legislation could bring down the price of fuel by between 10 and 30 cents a litre, the government says.

Energy Minister Megan Woods makes the announcement at Lyttelton fuel terminal today.

Energy Minister Megan Woods makes the announcement at Lyttelton fuel terminal today. Photo: RNZ / Conan Young

It is promising legislation by the middle of the year as part of a package aimed at bringing down the wholesale price that smaller companies pay when fuel is first brought into the country.

Today, the government has released details of the Fuel Market Bill, saying there would be consultation with industry players in coming weeks on the proposed regulations.

The government was acting with urgency and said the new rules should be in place by the middle of this year.

Energy Minister Megan Woods said the new law would require the three largest companies, Exxon Mobil, BP and Z, to publicly advertise the wholesale price of the fuel coming through their terminals.

The extra transparency and a requirement for smaller players not to be locked in to long term supply contracts, should foster more competition between the large wholesalers, which should in turn flow through to greater competition at the pump, she said.

"We're in Christchurch today. We know that the South Island has been paying up to and over 30 cents a litre more than North Island counterparts because there simply hasn't been as much competition here. What we will see as a result of these changes is there will be a more competitive market and we will see more players enter the retail sphere."

The moves are in response to a Commerce Commission study that found lack of competition is allowing some companies to make excessive profit.

Woods said the government's package would bring in most of the study's recommendations, making it easier for discount operators such as Gull and Waitomo to compete and could lower prices by between 10 and 30 cents a litre.

"We can't definitively say [how much], but what we are saying is that the regime we are putting in place will address the issue that the commission found which was higher-than-reasonable profits that were going to our fuel companies and was resulting in hundreds of millions of dollars being transferred from the pockets of consumers to the fuel companies."

Woods emphasised that was longer-term work to be completed in response to the Commerce Commission recommendations. She said letters from ministers to fuel companies had urged them to take pre-emptive action over the issue.

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Photo: RNZ / Dan Cook

"The action the government is taking in response to the Commission's report forms a package of solutions to deal with entrenched problems that have been around since the 1980s," Woods said in a statement.

"The Commission's report found that companies were 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."

She said the government's focus was on making changes at the wholesale level so smaller players such as Waitomo and Gull could gain access to cheaper fuel, forcing other retailers to adjust prices or risk losing customers.

"Cumulatively, the suite of measures we're introducing will mean competition can begin to flourish, and the benefits will filter down to consumers."

Regulatory changes in the Fuel Market Bill currently being drafted include:

  • More transparent wholesale pricing regime requiring fuel suppliers to publicly post the prices they sell to wholesale customers at storage terminals
  • Rules to ensure contracts between wholesale fuel suppliers and their customers are fair and support competition
  • Providing a dispute resolution scheme for the new regime
  • Improvements to the monitoring of the fuel market by requiring fuel companies to collect and disclose certain information
  • Requiring retail fuel sites to display premium fuel prices on forecourt price boards.

National targets regional fuel tax

National party finance spokesperson Paul Goldsmith said the moves the government planned were not enough.

"Look, there are some modest changes here but fleecer-in-chief has been the government and its big fuel increases over the last three years and the Auckland fuel tax, and they need to take responsibility for that."

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National's finance spokesperson Paul Goldsmith Photo: RNZ /Dom Thomas

The National Party said the government should be focusing on taxes, not petrol companies, to bring down prices at the pump.

"This tax grab is estimated to hit $1.7 billion milked from New Zealand motorists once further tax hikes take effect," he said.

He said the government's response tinkering around the edges instead of addressing the real issue, and National was promising to scrap the regional fuel tax and not impose any new taxes in their first term should they enter government.

Gull, Waitomo look to expand in South Island

Fuel discounter Gull had one terminal in Tauranga and had until now been reluctant to open branches in the South Island where the three big players had the terminals all sewn up.

General manager Dave Bodger was in the South Island on Thursday looking for potential locations for new Gull service stations, something he said were now more likely to happen.

Requiring the big players to make their terminal price public would ensure a fair price was charged, he said.

"We'll be able to say well okay we know this is how much it costs to import it in from Singapore, Japan, Korea and then okay now you're going to sell it to us for that, we'll take the tax out of it so therefore you're charging us two cents a litre, you're charging us four cents a litre, we'll be able to do that backwards maths to work out what that fee is."

Another discounter, Waitomo, had no terminals and was completely reliant on its competitors to supply it wholesale fuel.

Managing director Jimmy Ormsby liked the sound of shorter term contracts so smaller players could shop around for better prices.

"Any competitive tension at any place in any market for any given product at any time is good, because it should hopefully create, you know what we all want, which is a competitive market."

Z Energy welcomes changes, rejects overcharging claim

Profit margins as high as 20 percent from the likes of Z Energy were quoted today by Megan Woods as justification for the changes.

Z Energy chief executive Mike Bennetts said that was unfair

"These tanks are big, they are expensive to operate and every now and then they need to be replaced or substantially upgraded," he said.

"I don't want to bag anyone but there are some of our competitors who have not invested in infrastructure over the last decade and therefore they are effectively benefiting from our investment in infrastructure, and again, from a competitive perspective, one could argue that's not fair."

Bennetts said he welcomed the proposed changes and his company was already making its wholesale prices public.

A statement from BP said it would continue to engage with the government over the next month as it consulted on the changes to ensure the right outcomes for consumers and the market.

Exxon Mobil did not respond in time for this story.

Woods said cheaper prices should start flowing through to the pump by the end of the year.

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