Comment: You're probably not being fleeced at the petrol pump

Petrol companies have long been accused of fleecing customers. Photo / Getty Images

COMMENT:

People may not like the prices they are paying for fuel, but that doesn't mean there's a lack of competition or that there's any 'fleecing' going on.

The Commerce Commission's public conference on retail fuel competition last week was invaluable.

Gull, which bids to supply major corporates like KiwiRail and Fonterra, related that it had never been asked to tender to supply any of the country's minor fuel resellers.

BP described the coastal shipping scheduling undertaken for it, Z Energy and Mobil as a "hugely complex" arrangement that takes three accountants to understand and can at times increase shipping costs.

Z Energy told the commission exclusive supply arrangements were necessary with smaller retailers to ensure product quality; Waitomo Group countered that while it is supplied by
Mobil, it is effectively drawing fuel from the other major firms' terminals under the sector's borrow-and-loan arrangements.

It's the sort of frank, effective communication that often comes only when all the right people are in the same room.

Unfortunately, it feels like the conference was about three months too late in the process and that unrealistic expectations may have already been raised.

Prime Minister Jacinda Ardern declared in August – on the back of the commission's preliminary findings – that consumers are being "fleeced" by their fuel suppliers. It was a repeat of the claim she made a year ago which set the commission's first market study underway.

"You will remember our instinct was that New Zealanders were being fleeced at the pump," she said in August. "Now the Commerce Commission has confirmed that that is true."

Hmmm. Maybe not.

The study has clearly shown ways to help evolve the fuel market so that there is greater visibility of wholesale petrol and diesel prices and so that the country's band of growing smaller distributors can continue growing.

People may not be getting all the loyalty discounts potentially available to them but that's a long way short of being "fleeced."

Prime Minister Jacinda Ardern has said that Kiwis are being fleeced at the pump. Photo / File

And the fact that the smaller retailers are growing is an important point. After a decade in the early 2000s when many smaller communities lost their petrol stations – the number of outlets is increasing again, in a market where total volumes are flat.

Importer margins – as best they can be estimated – appear to have stabilised after rising since 2008. Fuel prices in places like Upper Hutt, Rangiora and Rolleston, where the likes of Waitomo, NPD and Allied Petroleum have opened new outlets, have fallen.

If anything, the study has demonstrated just how diverse the business models and offers in the industry have become to maintain viable choices for consumers right around the country.

Market studies are meant to be an assessment of competition and it's important to get this first one right.

Because, by their nature, these studies will be initiated by politicians. The commission may or may not recommend action, but it will be politicians that then take the next steps.
So the studies have to be watertight.

Unfortunately, many of the issues in dispute last week – particularly the way the commission tried to assess industry profitability – had been flagged as problematic by firms back in February. Why were the parties still so far apart?

And we're not talking small differences. The commission's estimate of Z Energy's average earnings was 22 percent higher than the company's; the resulting estimated return on capital was further boosted by an $831 million – 40 percent - difference in the commission's estimate of Z's capital employed.

The complex inter-relationships between the major firms' shared coastal shipping, product imports and the borrow-and-loan scheme, had also been spelt out in earlier submissions, but its benefits and the restrictions it imposes on participants seemed only to resonate at the conference.

"That is an interesting perspective that hasn't really come through to us before," chair Anna Rawlings observed about the scheme's complex inter-relationship with imports.
It's not that the commission isn't trying to do a good job. But by its own admission, it really had only six months to develop its preliminary view.

More time would have helped. An open discussion with industry earlier in the process may also have helped better frame the issues and focus the thousands of pages of evidence commissioners received.

The commission's working assumption that it will carry out one market study a year, at a cost of about $1.5 million, is cast neither in stone nor the Commerce Act. If the commission wants more time on fuel – beyond the current Dec. 5 deadline - it should ask for it.

Housing Minister Megan Woods is already musing about a potential market study into building products.

Before that goes any further there needs to be a good hard look at how you would scope a study into such a broad industry, how long the work would realistically take and the commission's resourcing to undertake it.