Commerce Commission finds fuel discounting 'distracts' us from high prices

The Commerce Commission has published its final report into the retail fuel market and has highlighted several ways New Zealanders are being forced to pay more than they should.

The commission found that discounting and loyalty offerings are "prolific" in New Zealand and that it "distracts" people from the fact they're paying too much at the pump.

Some consumers also may be using premium fuel when they don't need to, so the commission recommends introducing fuel cap stickers specifying the minimum fuel grade to be used on vehicles.

New Zealand also lacks a competitive wholesale market - an issue that's been raised before - and as a result the public is paying "higher prices than they would in a workably competitive market".

"We consider many fuel companies have been making persistently higher profits over the past decade than we would expect in a workably competitive market," commission chair Anna Rawlings said on Thursday.

"For consumers, this means they are paying higher pump prices than could be expected."

The commission recommends regulating wholesale supply contracts to allow greater freedom for resellers to compare offers and switch prices. Long-term contracts would be limited and clear language would be mandatory. 

It's also recommended that a 'Terminal Gate Pricing Regime' be introduced, based on Australia's model, which would essentially lower barriers for entry and expansion for importers and distributors.

That would break the hold that Z Energy, BP and Mobil hold on the wholesale market in New Zealand, the commission said.

Commerce Commission chair Anna Rawlings presenting the study's findings.
Commerce Commission chair Anna Rawlings presenting the study's findings. Photo credit: Newshub / Zane Small

Commerce and Consumer Affairs Minister Kris Faafoi said the findings "confirm our concerns that consumers are paying higher prices for petrol and diesel than could be expected in a competitive market". 

In its preliminary report to the Government released in August, the commission noted how there was a lack of competition in New Zealand's retail fuel market and that it is dominated by those three players.

The companies use a shared network to supply about 90 percent of the nation's petrol and diesel, either through their own branded service or via other distributors or resellers on exclusive wholesale contracts.

Without access to the main companies' shared network or the wholesale market, the commission said new importers would struggle to establish a standalone chain.

Christina Leung, principal economist at the New Zealand Institute of Economic Research, agreed last month that while there's competition at the retail end, behind the scenes the wholesale market is dominated by three big players.

The Government will now take the Commerce Commission's recommendations to Cabinet to discuss implementing some of the recommended changes. 

The Government gave the Commerce Commission the power to conduct market studies into various industries under the Commerce Amendment Act 2018, allowing them to examine issues that are not a direct breach of competition law, such as barriers to entry. 

Rawlings pointed to some positives in the market found during the market study.

The establishment of Timaru Oil Services' new import terminal in Timaru, the expansion by Gull and resellers including Waitomo and NPD, as well as the introduction of electric vehicles, could help to reduce fuel prices.

She noted how other aspects can affect fuel prices in New Zealand, such as the global price of crude oil and how the New Zealand Dollar is performing.

What sparked the investigation?

The commission's investigation came at the request of Energy Minister Megan Woods in December last year to find factors affecting competition for the supply of retail fuel.

The investigation was sparked by a spike in petrol prices last year. Between October 27, 2017 and September 28, 2018, petrol prices rose by 39 cents. Prices reached about $2.48 in October 2018.

Prime Minister Jacinda Ardern expressed concern over rising fuel prices at the time, and said New Zealanders were "being fleeced". 

After the preliminary report's release in August, National leader Simon Bridges branded Ardern the "Fleecer-in-Chief with all the taxes she's piled on", referring to the 3.5 cents per litre increase to the petrol excise tax in May - an addition to the increase in 2018.

ACT leader David Seymour said if the Government is going to require petrol stations to display premium petrol prices on price boards, it should also require them to display what proportion of the price is tax.

This diagram shows how much tax is included in the price of fuel in New Zealand.
This diagram shows how much tax is included in the price of fuel in New Zealand. Photo credit: Commerce Commission

BP earlier this year argued that the cost of petrol prices are 44 percent made up of taxes, including excise duty, GST and ACC levies.

Last month, the AA said the national petrol price moved up for the first time in seven weeks, with petrol up 3 cents per litre and diesel up 1 cent per litre on November 8. 

A week later, petrol rose another 2 cents per litre, but with no change in diesel prices. The AA said the price rise was driven by an increase in the commodity price for refined petrol.

Petrol and diesel prices in November:

  • 91 Octane: $2.36
  • 95 Octane: $2.45
  • Diesel: $1.62
Contact Newshub with your story tips:
news@newshub.co.nz