Petrol price rules may lead to fuel company collusion

Officials have warned the Government that the changes it is imposing to the petrol market to reduce prices may lead to collusion between fuel companies.

Officials have warned the Government that the changes it is imposing on the petrol market to reduce prices may lead to collusion between fuel companies.

If this occurs – and officials say there is a moderate to high chance that it would – new legislation would be needed to prevent escalating the issue.

Act Leader David Seymour says this would lead to price increases at the pumps.

But Energy and Resources Minister Megan Woods is confident the rules the Government have in place would prevent any collusion occurring.

Last week, the Government released its response to the Commerce Commission's report into the fuel market, unveiled in December.

This comes after Prime Minister Jacinda Ardern said in late 2018 that consumers were being "fleeced" by fuel companies at the pump.

The commission's report recommended the Government introduce a raft of new regulations aimed at increasing competition in the wholesale fuel market.

That would, in turn, reduce petrol prices, according to the commission.

The report recommended petrol companies should be forced to disclose the prices at which they buy and sell fuel to each other in a bid to drive competition in all parts of the country.

This recommendation was adopted by the Government – Woods said it would help bring prices down at the pump.

But a Regulatory Impact Statement (RIS) written by Ministry of Business, Innovation and Employment (MBIE) officials warned the forced disclosure had some major risks.

"Increased transparency of fuel pricing [at the terminal gate] may facilitate collusion."

It goes on to say that if collusion was identified, "further legislative intervention may be required".

Energy and Resources Minister Megan Woods said the new rules would help bring prices down at the pump. Photo / Mark Mitchell

Woods said the Government is planning to implement a regulatory backstop, which will be available after the bill is passed later this year, which would help prevent collusion.

In addition, she said the Commerce Commission would bolster its fuel-monitoring process, which would help identify competition issues.

Act leader David Seymour said traditionally it has been illegal to tell your competitors what you plan to charge because they might use the information to fix prices.

He said this was likely to raise prices.

The RIS also warned that the new terminal-gate pricing rules – which require fuel suppliers to set daily buying and selling spot prices – could actually increase petrol prices.

"The terminal gate price regime may impose additional costs, which could lead to higher retail prices if wholesale competition does not increase."

These increased costs could be born out of increased investment by the fuel companies, increased shipping frequency or shortages of petrol supply.

But officials say this risk would be lessened by close monitoring of terminal gate pricing.