Competition watchdog proposes breaking wholesale stranglehold on petrol supply
By Pattrick Smellie
Aug. 20 (BusinessDesk) - A stranglehold on the wholesale supply of petrol and diesel is at the core of New Zealand's
less than fully competitive transport fuel market and it should be loosened, the Commerce Commission says in the draft
findings of its first study of competition in a market under revised legislation.
Wholesale infrastructure sharing arrangements between the three largest fuel retailers - Z Energy, BP and Mobil - gives
them "an advantage over any other potential rival importers, as their costs to deliver fuel are lower," said the
competition watchdog's chief executive, Anna Rawlings.
"They also have long-term supply relationships with their resellers, most of whom have only ever had the same supplier,
which has made it very difficult for competitors to enter or compete more vigorously in the market,” she said. The large
players also 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."
The commission proposes opening up the wholesale market for petrol and diesel, 90 percent of which is supplied by the
big three players, to make it easier for petrol stations to switch suppliers and allow greater participation by
competitors in the infrastructure owned by the three big suppliers under arrangements that date back to before the
sector was deregulated in 1988.
Such a move could help smaller fuel retailers like Waitomo, Allied Petroleum, GAS and Gull compete with the major firms'
dominance of the country’s petrol and diesel sales and control of most of the country’s fuel storage around the country.
The report says signs of less than desirable competitive forces in the New Zealand transport fuels market include many
fuel companies being "highly profitable," regional fuel price differences reflecting variable levels of retail
competition and that premium petrol margins have grown faster than regular petrol margins.
It also finds that "discounting does not provide a substitute for competition on board prices," implying that the major
fuel companies' argument that the use of loyalty schemes and supermarket docket discounts is evidence of competition has
failed with the commission.
While the largest of the new entrant competitors to the sector, Gull, is acknowledged for creating competitive pressure,
it does not escape criticism completely, with the commission noting "it is also incentivised to maximise its own profits
and can do so with little threat of further competition driving prices down."
The government requested the market study after a 2017 investigation led by the Ministry of Business, Innovation and
Employment found fuel pricing in some parts of the country may not be reasonable.
Prices were generally highest in the South Island and Wellington, areas in which discounter Gull did not operate. MBIE
also calculated that the recovery in retailers’ fuel margins since 2008 were now costing the average motorist about $150
Among other issues highlighted in that work was the major firms’ control of most of the fuel storage around the country
and Gull’s complaints that its efforts to gain access to some of that on commercial terms had been rebuffed out of hand.
Prime Minister Jacinda Ardern upped the ante last year when she accused fuel retailers of “fleecing” consumers as a
combination of rising crude oil prices and a weak New Zealand dollar pushed pump prices to records.
Since then, Timaru Oil Services, owed by French-Pacific interests, has started building new fuel storage at the port
there. Waitomo and Gull have started expanding into Wellington and both firms have announced plans for their first
outlets in the South Island.
Earlier this month, Z Energy, the country’s biggest fuel retailer, noted that volumes sold by smaller distributors had
roughly doubled since 2011 and now account for a fifth of all petrol sales. They also accounted for about 70 percent of
the 119 new outlets opened between 2014 and 2018.
Submissions on the draft report are open until Sept. 13, with a final report due in December.