Article – BusinessDesk
Petrol consumers being ‘fleeced’, says Ardern; promises new investigation
By Pattrick Smellie
Oct. 8 (BusinessDesk) – Prime Minister Jacinda Ardern effectively declared war on the petrol industry today saying “New Zealanders, in my book, are being fleeced”.
Stung by steeply rising petrol prices and politically exposed because of the government’s regional fuel tax policy, she promised to rush legislation through Parliament that would compel industries to open their books to competition regulators and vowed personally to promote an inquiry into the price of transport fuel as a top priority.
Ardern, speaking after Cabinet, pointed to a 39 cents per litre increase in the price of petrol during the past year, of which 22 cents was down to higher international oil prices, 6.8 cents per litre was new taxes, and an “unacceptable” 9.8 cents per litre was an increase in importer margins.
Importer margins are the main way the Ministry of Business, Innovation and Employment tracks changes in fuel company profitability.
“Given concerns about anti-competitive behaviour in the fuel market, we are going to be prioritising the passing of the Commerce Amendment Bill through second and third reading in the House when we resume next week. My expectation is it will complete all stages by the second sitting week,” said Ardern.
The amendment to allow so-called market studies has been wending its way through Parliament since March, with wide political support, and will allow the government’s competition watchdog, the Commerce Commission, to compel petrol companies to open their books.
Last year’s petrol price inquiry was inconclusive, with investigators the New Zealand Institute of Economic Research, Grant Thornton and Cognitus reporting that “we cannot definitely say that fuel prices in New Zealand are reasonable” but had “reason to believe that they might not be”.
That investigation was hampered by incomplete and variable disclosure of commercial information, with price-leader Gull reportedly unable to provide information in the format desired while Mobil was unforthcoming.
Z Energy, whose chief executive Mike Bennetts has led an industry push to improve its profit margins since earlier this decade, supplied information as requested to the earlier inquiry. Bennetts rested his argument for higher margins on concerns the industry was not re-investing in vital transport fuel distribution infrastructure, with risks both to public safety and security of fuel supplies. He has also resisted making fuel tank storage space available to competitors, such as Gull, on uncommercial terms.
However, Ardern said regulating for open access to fuel terminal facilities was amongst the options available to the government. She signalled a preference for regulation to improve competition rather than price control.
A fuel price inquiry has been on the cards since the election of the coalition government last October although the coalition agreement between the Labour and New Zealand First parties only cited an inquiry into electricity prices. A full market study would be unable to report until some next year.
However, Ardern will be expecting the politically sensitive transport fuels sector to moderate its pricing behaviour in light of the strong rhetorical attack she mounted today.
“I am hugely concerned at the level of price that consumers are paying for fuel at the pump,” said Ardern, who has faced mounting pressure from the National Party to axe the 3.5 cents a litre regional fuel tax operating in Auckland and a call for a one-day boycott of petrol stations by the Automobile Association.
The 30 percent rise in the price of imported crude oil since the beginning of the year only partially explained the rise in petrol prices. Motorists are paying around $2.50 per litre for 91-octane petrol, a historic high. Drivers in Wellington and the South Island often pay higher prices than Aucklanders, largely due to the absence of Gull in those regions.
In 2008, New Zealand had among the lowest pre-tax petrol prices in the rich countries club, the OECD.
“It is now the highest,” Ardern said. “Between 2008 and 2017, margins more than doubled from 7 percent to 16 percent. That represents a transfer of wealth to petrol producers from consumers to the tune of hundreds of millions of dollars.”
“Pre-tax, as of today, New Zealand has the highest cost of fuel in the OECD and some of that cannot be explained,” she said.
Even if the government removed the recent excise increase, “I cannot guarantee that fuel companies would not simply absorb that themselves and that consumers would pay the same price”, said Ardern. “We’ve got to look at what’s happening with the fuel industry. They haven’t opened up their books to us in the past. We are going to have to force them to do that.”