Competitiveness and transparency in the retail fuel market
Hon Megan Woods
Minister of Energy and Resources
Hon Kris Faafoi
Minister of Commerce and Consumer Affairs
5 December 2019 PĀNUI PĀPĀHO
Government to improve competitiveness and transparency in the retail fuel market
Consumers will benefit from a more competitive, transparent retail fuel market as a result of changes the Government will be making in response to the findings of the Commerce Commission’s study of the fuel sector.
“We accept the Commission’s findings and, as the Prime Minister has said, we’re ready to act on them,” the Minister of Energy and Resources, Megan Woods, said on Thursday.
“The report confirms our concerns that consumers are paying higher prices for petrol and diesel than could be expected in a competitive market. The changes we make will address that, and we expect those benefits will flow through to motorists,” Commerce and Consumer Affairs Minister, Kris Faafoi, said.
“The Commerce Commission’s study found a lack of competition in wholesale markets. We’ll be introducing the best options to increase competition at a wholesale level, which will filter down to the retail market and prices on the forecourt,” Minister Woods said.
“A more competitive wholesale market means that low cost brands, like Waitomo and NPD, would be able to access cheaper fuel and pass these benefits onto consumers. Other retailers would be forced to adjust their prices or risk losing customers,” said Dr Woods.
“The report also found that fuel dealers and distributors have limited ability to switch suppliers due to restrictive terms in their contracts. We’ll look to introduce a mandatory industry code to regulate the conduct of participants in the fuel industry.
“This is about breaking the big fuel companies’ stranglehold on supply and getting more competition into the market to benefit consumers,” Dr Woods said.
The Government will now take the Commerce Commission’s recommendations to Cabinet with a view to swiftly implementing changes, such as:
• A more transparent wholesale pricing regime
• Greater contractual freedoms and fairer terms to facilitate wholesale competition
• Introducing an enforceable industry code of conduct
• Improve transparency of premium grade fuel pricing
“We will look to require that retailers display both regular and premium petrol prices on service station price boards, and I’ll be encouraging retailers to make those changes as soon as possible,” Minister Faafoi said.
“We also see merit in adding premium fuel prices to the Ministry of Business, Innovation and Employment’s current monitoring of regular grade petrol and diesel margins so consumers have a better awareness of price trends.
“The report has found there is action required in several key areas and the steps we’re going to take to address these will make the retail fuel market fairer for all New Zealanders,” he said.
Both Minister Faafoi and Minister Woods thanked the Commerce Commission for their work on this first market study.
The Government launched the retail fuel investigation in December 2018 to look into competition in the fuel industry after importer margins more than doubled over the past decade.
The Commerce Commission released its draft report in August 2019. The final report released today has confirmed a range of issues included in the draft report, including:
• Fuel companies are highly profitable
• Discounting is a poor substitute for price competition
• Regional differences in retail fuel prices reflect variations in competition levels
• Margins for premium petrol have grown faster than for regular petrol.
The Government has given the Commerce Commission the power to conduct market studies into various industries under the Commerce Amendment Act 2018. This allows the Commission to examine issues that are not a direct breach of competition law, such as barriers to entry, but that may require regulatory or other types of policy changes in order to be resolved.
The retail fuel study is the first market study. The next market study will be confirmed next year.