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Not enough competition in fuel retailing: Commerce Commission

After nine months of investigating the retail fuel market in New Zealand, the Commerce Commission has released its draft report into competition in the sector, and found it generally lacking.

Commission Chair Anna Rawlings said that the fuel market is not as competitive as it should be, with many fuel retailers highly profitable, premium petrol margins overshadowing regular petrol, and regional differences in fuel prices correlating with variations in competition.

“Our preliminary findings suggest that many fuel companies are earning returns on investment that are higher than what we would consider a reasonable return to be,” Rawlings said. 

“In our view, the problem is the lack of an active wholesale market in New Zealand.”

Prime Minister Jacinda Arden didn’t take kindly to the findings, telling New Zealanders that the Government wouldn’t stand by while they are being fleeced at the pump, and would take the Commission’s recommendations when the final report is completed in early December. 

According to the report, 90 per cent of the country’s petrol and diesel are supplied through Z Energy, BP and Mobil, which together have a series of infrastructure arrangements which date back to before the sector was deregulated in 1988.

Because of this, major suppliers have a significant advantage over rival importers, who need to establish their own standalone supply chain in order to compete.

“Not only have other fuel importers been unable to access the wholesale market, but the majors themselves have limited incentive to compete with each other during the terms of their supply contracts,” Rawlings said. 

“This then flows through to retail pricing where competition is inconsistent and often constrained by the wholesale price resellers pay the majors that supply them.”

What can be done?

The draft report lays out two options for improving the lack of competition in the New Zealand retail fuel market. 

Making it easier for resellers to switch between suppliers through greater contractual freedom, and enabling wider participation in the majors’ joint infrastructure system.

“The options we are considering in the wholesale market are not quick fixes, but may help to open up the market and improve competition over time,” Rawlings said.

“We particularly want to test their feasibility with fuel companies and other experts, and gauge whether there may be other options that could help competition.”

The final report is set to be published on December 5, 2019.

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