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AUS: ACCC Concerned With Perth Autogas Prices

7 September 1999

The Australian Competition and Consumer Commission has issued a draft report into the LPG industry in Western Australia.

The report follows complaints from consumers and other parties about the level of retail prices of LPG products, particularly given the abundance of LPG supplies in WA. Concern has also been expressed about the price of bottled LPG.

The ACCC's preliminary view is that current pricing outcomes in the Perth autogas market appear to reflect a lack of competition.

Retail prices of autogas in Perth have been higher and more stable than in other mainland capital cities. Part of the reason for high prices in Perth is that the market is small and unit costs are, as a result, probably higher than in larger markets. However, this is unlikely to fully account for the price behaviour observed in Perth.

On the whole, the behaviour of autogas prices in Perth appears to be different from the behaviour observed in other markets. In particular, retail price movements seem to have a less direct relationship with changes in producer prices than in other markets. Underpinning this pricing behaviour are a number of supply arrangements which are distinctive to the WA market.

The ACCC is also concerned about aspects of the structural arrangements in the WA LPG market. The production and distribution sectors of the LPG industry are highly concentrated. At the producer level, Wesfarmers LPG and BP account for almost the entire production of LPG for the domestic market in WA. Kleenheat, also a subsidiary of Wesfarmers Ltd, plays a central role in the distribution of LPG from producers to wholesalers.

However, the wholesale sector has undergone structural change in the last few years. Kleenheat no longer occupies the dominant position it had in the early 1990s, mainly due to the vertical integration of the oil majors into wholesaling for their own retail sites and the entry of some independent wholesalers.

Since 1997, retail prices have trended down and this may suggest a greater sensitivity to costs. However, it is too early to tell whether this constitutes a new phase in the development of the LPG market in WA. Of course, recent trends may be difficult to interpret given the current environment of price volatility in all Australian markets as a result of dramatic changes in overseas prices.

The overall observation is that the WA market is not as well developed and is less mature than other markets.

The draft report finds that cylinder gas prices do not seem excessive relative to prices in other States. As such, the main focus of the review has been assessing the price of autogas, especially retail prices charged in the Perth market.

This draft report presents the ACCC's preliminary views that may be revised in the light of additional information provided by interested parties on any one of the issues raised in the report.

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