Government launches investigation into retail fuel market, despite expected price drop

Jacinda Ardern has defended the Government's excise tax increase introduced in October, appearing confident the bump hasn't affected fuel prices in New Zealand.

"When the original conversation was being had, people were certainly asking questions around the contribution of excise," the Prime Minister said during a Monday press conference in Wellington.

"The point we made at the time was that if you look at New Zealand's pre-tax price 10 years ago to where we are now - that raises questions," she said, adding that New Zealand has the sixth-lowest fuel tax in the OECD. 

Petrol prices increased by 3.5 cents nationwide in October as an increase to the fuel excise tax came into effect. Further 3.5 percent increases will be introduced in 2019 and 2020.

The Prime Minister's comments came after the Government on Monday announced it will probe the retail fuel market in what will be the first Commerce Commission market study, despite fuel prices expected to fall further before Christmas.

"This Government is committed to easing financial pressure on families," said the Prime Minister, echoing her previous concerns over the high cost of fuel, as it's a "core expense for consumers and businesses".

Consumer Affairs Minister Kris Faafoi said while there were several possible markets suggested for consideration, the retail fuel market clearly met the test for investigations.

"Simply, it's in the public interest to ensure people and business aren't paying too much for fuel," he said on Monday.

"There are existing indications of competition problems in the retail fuel market that are of concern to me, such as the more-than-doubling of petrol and diesel importer margins over the past decade.

"It's also a market that is hugely important to consumers and to our economy, given the extent to which we rely on fuel and the size of the market, with around 6 billion litres of petrol and diesel consumed for land transport use annually."

Nevertheless, BP has welcomed the investigation, with BP New Zealand managing director Debi Boffa saying on Monday that the Commerce Commission "are the right people to do this work because they have the level of independence required".

It comes after Automobile Association (AA) market analysts said on Monday that fuel prices could drop further for the Christmas period.

Fuel prices have continued to fall in New Zealand, with the AA noting last week the "15 price cuts in a row" with the price of petrol down 42 cents per litre (cpl) and diesel down 31cpl in total in the past seven weeks.

Petrol prices reached a 30-year-high in September, averaging $2.32 for a litre of 91 octane across the country. But prices have since dropped significantly over the last month, falling as much as 30 cents in places.

The Prime Minister said last month she hasn't been given a "reasonable explanation" why petrol costs so much now, after announcing in October she would prioritise passing the Commerce Amendment Bill to force the industry into greater transparency.

She said on Monday there has been "huge changes in the price of oil" - but added even when that's been occurring, there have also been "huge variations at a regional level".

"What we do need is a rigorous look at what's happening in the fuel market and that's what this is going to allow us to do."

Mr Faafoi said on Monday the Commerce Commission will be "undertaking a full and thorough analysis into competition in the retail fuel market".

"This will enable us to better understand the market conditions and determine whether consumers' interests are being protected at present, and if not, what action needs to be taken."

The terms of reference for the study into retail fuel markets are expected be published in the Government's Gazette newspaper on Wednesday, when the Commerce Commission will start the study.

The Commission will provide further information about the process and updates and will be required to publish a final report by December 5, 2019.

Ms Ardern said she would have liked the results to come out sooner.