Fuel report advises Government hands off

By CHRIS DANIELS energy writer

The Government should leave vulnerable independent petrol stations to sink or swim, says new research commissioned by Associate Energy Minister Paul Swain.

The New Zealand Institute of Economic Research (NZIER) was asked to study whether consumers were being hurt by the decline in the number of petrol stations owned by independent business people.

Many independent station owners have complained of being pushed out of business by the big stations owned by the oil companies.

Aggressive price wars between the oil giants last year, particularly the introduction of "cheap weekends", caused economic hardship to the small station owners.

The report found that low-volume independent sites were under threat as retail margins on petrol sales shrank, but sites where a lot of petrol was sold were still viable.

Despite stations shutting down, new entrants to the market, such as Gull and Challenge, were able to build new petrol stations where they could sell high volumes.

The NZIER decided that the decline in small petrol stations was part of a market rationalisation that had been going on for some time. It was not reducing competition, nor causing "market inefficiency".

The Government had developed policies constraining what were regarded as "vertically integrated natural monopolies" such as Telecom, because of concern for reduced innovation in customer services.

"There is not such concern with vertically integrated oligopolies since the competitive pressure for product and service innovation is still present."

The NZIER's examination and survey of literature showed that "increased vertical integration of petroleum wholesaling and retailing is unlikely to waste resources or harm consumers".

Concerns about rural communities being threatened by the closure of small stations were rejected by the institute's researchers.

"Rural sites tend to have lower costs [land and labour], more site diversification [workshops for repairing vehicles and farm Machinery] and be able [because of their isolation] to set higher margins to offset lower volumes and higher delivery costs," they said.

The MTA said it was disappointed with the research, which, while acknowledging that independent retailers were disadvantaged and lacked protection during discount weekends, decided nothing needed to be done.

"We view the open disregard for the plight of independents with considerable concern," said MTA chief executive Stephen Matthews.



The Government has called for public comments on the report. The submission deadline is June 7.

Review of the Role of Independent Petrol Retailers 2001-2002