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Petrol To Regulate Or Not To Regulate

12 July, 2017

Petrol prices may irritate motorists but it is unclear what can be done.

Petrol To Regulate Or Not To Regulate - That Is The Question?

INSIGHTS ABOUT THE NEWS - After the headlines die away about the Fuel Market Financial Performance study, attention will move to whether the Govt will take any action over it.

As reported in the NZ Energy & Environment Business Alert, one aspect of the report which has been little reported is officials are not convinced regulation will solve the problems and may even make it worse.

Energy and Resources Minister Judith Collins may hope the mere threat of regulation could change companies’ behaviour. Aside from rising margins, one of the problems for politicians is the regional price variation, with the study suggesting higher prices in Wellington and the South Island are set at where the most can be extracted without them being high enough to justify a competitor spending the large amounts necessary to enter the market. If this regional variation is not smoothed or explained the intervention risk will be high.

In the meantime, Collins wants Z Energy to remove its national reference retail price from its website. One of the counter-intuitive findings of the report is overseas experience shows greater price transparency allows petrol retailers to better set their prices rather than giving consumers more power.

Collins wants to look at creating of a registry for the borrow and loan system which limits each participant’s visibility of market shares; and a liquid wholesale market for retail fuels.

The study says petrol supply through the refinery and container terminals is tightly held and leaves little room for new competitors without very large capital expenditure. Collins says she or her successor will look at the issue again at the end of November.

The report has other suggestions for intervention. However, a constant theme is officials are “unclear” whether any would have a positive impact.

One other option is further analysis by the Commerce Commission once a market studies power is available. This is the most likely course of action for a cautious Govt. Petrol companies though should be aware in the heat of an election politicians make promises to win votes and they could be an easy target.


ends

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