Fuel companies charging too much says ComCom

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Words: Nile Bijoux
20 Aug 2019

The Commerce Commission has released draft findings of its look into the New Zealand fuel market saying that it is not as competitive as it could be.

"Our preliminary findings suggest that many fuel companies are earning returns on investment that are higher than what we would consider a reasonable return to be," it said.

"Our current view is that the fuel market is not as competitive as it could be."

The Commerce Commission assessed only profit and competition.

ComCom found that while loyalty and discount schemes were “prolific,” these tended to be used as a substitute for genuine competition. Margins on premium fuel had also risen faster than those on regular petrol.

Further, the report found that retailers Z, BP and Mobil control 90 per cent of the fuel market in New Zealand, making it hard for rival importers to enter or influence the market.

"Not only have other fuel importers been unable to access the wholesale market, but the majors themselves have limited incentive to compete with each other during the terms of their supply contracts. As a result, competitive pressure does not appear to be driving down wholesale prices in New Zealand," said Commerce Commission chairperson, Anna Rawlings.

However, she stopped short of repeating Prime Minister Jacinda Ardern’s remark that motorists are being “fleeced”.

If competition was working well, consumers would be paying less over time, Rawlings said.

She also stressed that this is a draft report for discussion only and that the final report will be released in December when the Government decides whether changes are necessary.

At the moment, there are two “broad sets of options” the Commission is considering. According to Rawlings, neither is a quick fix but they could help open the market up and improve competition over time. The options would permit "greater contractual freedom", making it easier for independent petrol sellers to switch between suppliers, as well as allowing independents to "participate" in the majors' joint infrastructure, including their terminals.

Associate commissioner John Small said that the final report could even recommend forcing major importers to sell fuel to retailers at a “terminal gate price”.

Finally, Rawlings added the Commission is considering changes to improve the “transparency of premium petrol prices.”

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