Commerce Commission finds fuel market 'not as competitive as it could be'

Commerce Commission finds fuel market 'not as competitive as it could be'
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New Zealand's fuel market is "not as competitive as it could be", a market study by the Commerce Commission has found.

The study was undertaken by the commission after a request from the Government in December last year, to find factors affecting competition for the supply of retail fuel.

The draft findings released on Tuesday are preliminary and the full report will come out in early December. 

"Our preliminary findings suggest that many fuel companies are earning returns on investment that are higher than what we would consider a reasonable return to be," commission chair Anna Rawlings said. 

"In our view, the problem is the lack of an active wholesale market in New Zealand."

The study found that any new fuel importers wanting to break into the New Zealand market would struggle against the established companies Z Energy, BP and Mobil. 

They have a "series of infrastructure sharing arrangements that date back to before the fuel market was deregulated in 1988", the commission report said. 

It said those firms use a joint network to supply 90 percent of the nation's petrol and diesel, either through their own branded service stations or via other distributors or resellers on exclusive long-term wholesale supply contracts.

Without access to the main companies' shared network or the wholesale market, new importers would face the challenge of establishing a standalone supply chain. 

The investigation was sparked last year by Prime Minister Jacinda Ardern who said New Zealanders were being "fleeced" by fuel companies. 

She insisted that excise tax is only a small percentage of rising fuel prices. 

"You cannot tell me we do not have an issue in New Zealand when we have the highest pre-tax fuel cost in the OECD, and it's gone up by such a significant amount" Ardern said in October.  

"That's incredible, and some of it you simply cannot find an explanation for. I don't think that's acceptable. New Zealand consumers, in my book, are being fleeced."

Her comments came after petrol prices rose by 39 cents between October 27, 2017 and September 28, 2018. 

The Commerce Commission study found that not only have other fuel importers been unable to access the wholesale market, but the main companies have limited incentive to compete with each other.

"As a result, competitive pressure does not appear to be driving down wholesale prices in New Zealand," Rawlings said. 

"This then flows through to retail pricing where competition is inconsistent and often constrained by the wholesale price resellers pay the majors that supply them."

The commission recommends:

  • contractual freedom to make it easier for resellers to switch between suppliers
  • enabling wider participation in the main companies' joint infrastructure, including making it easier to share in their terminals