Focus: Petrol prices - Government says it will break market stranglehold. Video / Mark Mitchell
The Commerce Commission has recommended a raft of new regulations aimed at increasing competition in the wholesale fuel market and driving petrol prices down.
This comes after a market study confirmed the fuel industry is not as competitive as it should be - and that Kiwis pay too much for petrol.
The recommendations include introducing a Terminal Gate Pricing (TGP) regime to increase trading opportunities for importers and resellers and regulating wholesale supply contracts to allow greater contractual freedom for retailers to compare offers and switch suppliers.
This means the major fuel companies, including Z Energy, BP and Mobil, will be required to offer a spot price at which they will sell fuel to wholesale customers at storage terminals.
The commission warns that it considers ''a credible threat of further regulation if a TGP regime does not facilitate competitive wholesale prices within a reasonable period of time'' would also incentivise the majors to offer competitive prices.
''This type of regulatory intervention is likely to be lower cost and with a reduced risk of unintended adverse consequences compared to regulated participation in infrastructure sharing arrangements or price control.''
In Australia the terminal gate price is the price at which fuel companies sell tanker loads of to wholesale customers from seaboard terminals on a spot basis. The minimum amount that can be bought is 35,000 litres.
Across the Tasman BP says that by comparing retail prices with terminal gate prices, customers can judge whether they think a service station is charging a fair mark-up.
The Commerce Commission also recommends that the government regulate to require retailers display premium petrol prices on price boards to better enable consumers to compare the available prices of premium fuels without needing to drive into a station to check the pump price.
Regulations are also urged to require fuel cap or fuel flap stickers specifying the minimum octane level required to avoid customers buying premium fuel for their vehicle when they don't need to or inadvertantly buying regular petrol when their vehicle needs premium.
AA spokesman Mark Stockdale said changes won't happen overnight, but politicians will be keen to act quickly.
"The government is going to be looking for some quick wins here. They're going to want to see some changes in the fuel market before the next election."
All wholesale contracts should be written in clear and concise language and include a transparent cost-based pricing clause, the ComCom said.
"We have identified several factors we consider are hindering competition and contributing to these high returns," the commission said.
"In our view, the core problem is that an active wholesale market does not exist in New Zealand. This is weakening price competition in the retail market."
"The combination of infrastructure sharing and restrictive supply relationships gives the major fuel companies an advantage," commission chair Anna Rawlings said.
"There is a reduced ability for importers to compete for customers of the majors and for distributors and dealers to obtain competitive wholesale supply terms."
The commission also recommended enforcing an industry code of conduct to give effect to the TGP regime.
Rawlings said the final report recommendations were non-binding and it was up to the government to implement any changes.
"As a result of our study, we consider many fuel companies have been making persistently higher profits over the past decade than we would expect in a workably competitive market. For consumers, this means they are paying higher pump prices than could be expected," she said.
"We consider that measures to improve competition at wholesale and retail levels of the fuel supply chain will reduce their vulnerability to accommodating behaviour as well as the potential effect of any such behaviour that does occur."
The government had asked the commission to investigate the $10 billion a year retail fuel industry after a 2017 study led by the Ministry of Business, Innovation and Employment found fuel pricing in some parts of the country may not be reasonable.
Prime Minister Jacinda Ardern had previously said consumers were being "fleeced at the pump" and the government had already "started work" on driving petrol prices down.
The regulator's market study found the country's fuel retailers may be earning close to $400 million a year in excess returns, and few expect any reduction in profitability any time soon.
Analysis of the capital employed by the firms showed their average returns have consistently exceeded the commission's estimate of their weighted average cost of capital since Shell sold its local business in 2010.
However, Z Energy, BP and Waitomo Group all challenged the Commerce Commission's claims that a lack of competition in the fuel sector is delivering participants excess returns.
Z Energy, the country's biggest fuel retailer, argued there were a number of inaccuracies in the commission's draft findings on profitability, including a misrepresentation of Z's 2016-2018 rate of return as about 22 per cent, about double Z's independently reviewed calculations of about 11 per cent.
Following the release of the report shares in Z Energy rose 1 percent to $4.99, trimming their loss so far this year to about 8 percent. Z had been an advocate for the type of terminal-gate wholesale pricing the commission has recommended.
Today, associate commissioner John Small said the potential over-charging figure of $400 million was after-tax.
While there had been adjustments to the commission's estimate of firms' profitability, he said the final analysis shows its earlier work "stacked up.
"In the end, the numbers are broadly the same as in the draft."
The major firms, which operate most of the country's fuel storage around the country and share shipping arrangements and production capacity at the Marsden Point refinery, had argued the commission fundamentally misunderstood the costs and limitations those historic industry arrangements placed on them.
The commission's concerns about competition also sat uncomfortably with the ongoing expansion of cut-price operators like Gull, Waitomo, Allied and NPD in a flat market, and the fact that Timaru Oil Services is building a new 32 million litre fuel terminal in the South Island.
Gull and Waitomo have also opened their first outlets in the South Island in recent months.
Asked whether those developments have overtaken some of the commission's concerns, Rawlings said it remained to be seen how effective the competition Gull and Waitomo will provide in the areas where they are now operating.
"It still relies on obtaining supply into those sites," she told journalists in Wellington.
"Despite the increase in competition at the retail level, we haven't observed any structural change at the wholesale level.
"And we remain of the view that a more competitive wholesale market would improve the ability of players like those that you have mentioned to compete in retail."
