A Leaked BP email has revealed price rise tactics.
A leaked BP email discussing pump prices in Otaki and Levin has prompted outrage and calls for more transparency in the industry after it lifted the lid on the company's previously mysterious pricing strategy.
Petrol price differences between Kapiti and Horowhenua prompted the email, in which BP pricing manager Suzanne Lucas outlined a plan to counter dwindling sales in Otaki, where the price of fuel was 20 cents more expensive than in Levin.
Instead of reducing the price in Otaki to make the station more competitive, Lucas proposed an increase of the fuel price across the entire region, with the expectation that competitors would match the new price.
"We have already increased all three sites mentioned by 5cpl [cents per litre] and have found that the Z [Energy station] in Paraparaumu has already matched our pricing,'' Lucas wrote in an email obtained by Stuff.
"Over the next couple of weeks we will continue to try a number of tactics in the hope of reducing the pricing gap between Otaki and its surrounding regions."
Unfortunately for motorists though, the only thing being reduced was the gap itself, with climbing costs adding to pain at the pump
The Ministry of Business, Innovation and Employment last year released a report on fuel prices, saying it had reason to believe the market was not fully competitive and that fuel prices were unreasonable.
It said that since 2008, New Zealand pre-tax premium petrol prices had soared from the bottom third of OECD countries to become the most expensive. The swing amounted to a "wealth transfer" from consumers to producers, increasing the effective living costs of motorists.
Due to the concerns raised in this report, the Government said it was looking into giving the Commerce Commission more power to investigate petrol companies and the high prices they charge.
BP told Stuff the email was commercially sensitive, and they did not have permission to use it in any form. They also refused repeated requests for an interview and asked for information on how the email was obtained.
Previously, the company has said localised competition created areas where fuel could be discounted and they are able to compete, however this appears to contradict the strategy in the email.
Mark Stockdale, the Automobile Association's spokesman on petrol pricing, said for BP, rather than matching the prices of the Otaki station to the rest of the area it had chosen to lift prices at stations around it because doing otherwise would not have been profitable.
"They are just going to increase prices in other areas and hope they get away with it."
But he said the reality was there were plenty of other stations in that area.
"Will other stations match it? There is no reason why they should?"
Jonathan Young, National's energy spokesman said the BP email was very concerning.
"I think the Commerce Commission would be very concerned about this," he said.
"On the face of it, it doesn't look like premeditated collusion but we are not seeing a competitive element as well."
Mr Stockdale said there were no rules around setting the price of fuel in New Zealand as it was a deregulated market.
He said consumers expected the price to reflect the commodity price, exchange rate, taxes and a margin charged by the fuel company.
"But actually there is another element in there — there is a fifth element and that is competition."
He said there had been an increase in competition in recent years with the rise in low cost fuel retailers like Gull and Allied, both of which have premises in Levin.
"That has been a really good thing," he said.
"But motorists drive around and see the variance and don't understand with the price differs. The industry doesn't explain how competition works."
Mr Stockdale said that the only way to solve the problem would be to re-introduce uniform pricing, but warned that this isn't without its challenges.
"That poses a lot of problems, because of there are parts of New Zealand – particularly in the North Island – that are paying pretty reasonable prices thanks to the presence of low-cost brands that are typically unmanned."
He said that if we go back to uniform pricing it could mean that parts of the North Island might end up paying more than they currently are, while Wellington and South Island might end up paying less.
"Half the country will be happy and the other half will be unimpressed."
Mr Stockdale also warned that setting a uniform price could affect the level of competition coming from low-cost providers in the market.
"We've got 21 different fuel retailers in New Zealand and many of them are low-cost brands because they operate unmanned service stations. It's just pay at the pump, there's no shop, no staff, so their costs are lower. And they're passing those lower costs onto motorists in the form of lower pricing."
That should be the industry norm, he said, but what happened was that manned stations tend to match the unmanned price because they are concerned they will lose business.
Those stations had higher costs though, and that meant they were charging more in other parts of the country to recover that lost margin.
"Fuel companies should be doing a better job of explaining it," he said.