A report on the inconclusive Fuel Market Financial Performance Study, commissioned earlier this year by the Ministry of Business, Innovation and Employment after many complaints about the cost of petrol, has been ordered by Energy and Resources Minister Judith Collins.
The report is expected to be delivered later in the year, after the September election.
Fuel companies Z Energy, BP, Mobil and Gull were put on notice yesterday that the Commerce Commission, through powers yet to be enacted, could intervene in the fuel sector, although that eventuality could be years away.
In Ms Collins’ release with the study, she said fuel margins of the big companies had "increased significantly" over the past five years and also found higher prices in the South Island and Wellington, but they were not explained by any higher capital spending in the South.
Fuel companies made the highest margins in Wellington, at about 31c per litre. South Island margins were about 30c and North Island margins about 21c, NZN reported.
Ms Collins said there were difficulties comparing the information from Z Energy, BP, Mobil, Caltex and Gull, while some specific information could not be obtained.
"[The] study into New Zealand’s retail fuel market confirms that it has features which may not be consistent with a workably competitive market," Ms Collins said.
The study, covering 2013-17, said: "Our main recommendation is that a more comprehensive analysis of the sector be undertaken, using a range of techniques that offer the promise of arriving at firmer conclusions of whether change is required".
In the face of a 20c per litre disparity between petrol prices around the country, Ms Collins launched the fuel price study in February.
Last week, following a series of fuel price cuts, AA petrolwatch spokesman Mark Stockdale said the unexpected declines were due to the companies positioning their respective margins in anticipation of the study’s release.
Spokesmen for Z Energy, BP and Mobil last week rejected Mr Stockdale’s commentary, defending their methodologies for the price cuts.
Yesterday, Mr Stockdale welcomed the release of the study, saying it vindicated the AA’s call for scrutiny on prices, which had not been done for nine years.
"The difference of 30c or more across the country is simply not explained.
"Lower prices are great for those that get them, but they’re not there in the South Island," Mr Stockdale said.
He welcomed proposed changes which could result in the Commerce Commission launching a pricing study in the future.
"It’s good that the fuel companies now know there’s a threat of a market study [by the commission] always there," he said.
The study found the gross retail margins, after discounts, transfer price and storage and handling and logistics, had "increased significantly" during the past five years.
"Retail gross margins in the South Island and Wellington have increased at a faster rate than margins in the rest of the North Island," the study said.
The study said that meant fuel prices in the North Island were subsidised by prices across the rest of the country, but noted "the report is not definitive".
Research by brokerage Forsyth Barr said the faster increasing margins in the South Island and Wellington could not be explained through capital expenditure levels in those areas.
Broker Damian Foster said the study had effectively ‘‘kicked for touch’’ the immediate issue, in recommending that more work be done.
"The analysis suggests that there may be cross-subsidisation between the regions and business units, but this has not been confirmed beyond doubt," Mr Foster said.
On the question of Commerce Commission intervention, Mr Foster said the Commerce Act would first need to be amended, which could take up to 18 months, then a commission study could then take a further 12 to 18 months.
Ms Collins said "the study doesn’t definitively answer whether fuel prices are reasonable or not". She had instructed officials to assess the recommendations and report back by November.
On the question of information exchanged between the major retailers, they shared terminal facilities under a fuel borrow and loan arrangement, and were understood to share information allowing them to monitor each other’s market shares, the study said.
"Such information sharing is often a cause for concern to competition authorities because it might help to support co-ordination among firms leading to higher prices," the study said.
In response to the study’s release, Z Energy chief executive Mike Bennetts said the company had, as recommended in the study, removed its main port fuel prices from its website yesterday. He said the sector was more competitive than ever, with 21 different fuel brands across the country and 70% of all service stations owned by independent operators, who accounted for 20% of the market.
"Service station numbers are growing for the first time in decades and independent operators are bringing new business models and pricing structures to all parts of New Zealand, including Wellington and the South Island; this is why there is now more choice on prices than before," Mr Bennetts said.
The report
Recommendations for action
• Aspects of market which might be helping margins rise, such as contracts for independent firms to access terminals around the country.
• Reasonableness of prices, using new data from companies on a consistent basis, such as price and volume data.
Recommendations for market changes
• The removal of Z Energy’s "main port price", a national reference retail price, from its website (which Z removed yesterday)
• Creation of a registry for the fuel "borrow and loan" system which would limit each participant’s visibility of other participants’ market shares.
• Creation of a wholesale market for retail fuels.
Source: Ministry of Business, Innovation and Employment
Retail gross margins
The fuel companies’ margin is the difference between the price consumers pay at the pump and the cost of the refined product, which includes logistics, storage and handling costs to the retail station. [The] study into New Zealand’s retail fuel market confirms that it has features which may not be consistent with a workably competitive market Energy and Resources Minister Judith Collins
