Z offers to make prices clearer
Z Energy is willing to display its prices more clearly but its profits are not unreasonable and not as high as have been portrayed, the company has told the Commerce Commission.
The company recommended petrol companies should be required, if necessary, to display all their fuel prices on their roadside boards, including the price of ‘‘premium’’ higher-octane petrol and the post-discounted price of fuel.
What Z was suggesting should be displayed was the ‘‘standard discount’’ available to any customer, chief executive Michael Bennetts said, as opposed to any discounts tailored for individuals.
Z said it also supported measures that could potentially boost competition in the $10 billion fuel market.
The company said it backed providing a spot price at which independent petrol retailers could buy fuel from its fuel terminals, and ensuring independent retailers could not be locked into wholesale supply contracts for more than seven years.
The Automobile Association said in its submission that it was concerned petrol companies were charging too high a margin for premium higher-octane fuels and it had advocated for several years that service stations should be required to display the price of all fuels they sold on their roadside boards.
Z’s offers, which also contain the suggestion of an ‘‘industry code’’, were set out yesterday in a submission on the draft market study into the petrol industry published by the Commerce Commission last month.
That study stated that petrol companies appeared to have made ‘‘excess returns’’ for most of the past 10 years, which Prime Minister Jacinda Ardern interpreted as confirmation that motorists were being ‘‘fleeced’’ at the pumps.
Z said it had discovered ‘‘a number of inaccuracies’’ in the commission’s report.
While no single measure of profitability was perfect, the watchdog had misrepresented its rate of return on capital employed as being 22 per cent, when the more meaningful figure was half that, the company said in its submission.
It also claimed the commission had included the money Z made from ‘‘pies and coffee’’ in its analysis, ‘‘which is inconsistent with the mandate to consider the prices people pay for fuel at the pump’’.
Z argued it was earning an
11 per cent return on capital and said that was reasonable ‘‘given the risk involved in our industry, and how many Kiwis are relying on us to get around’’.
That return had fallen to about
10 per cent in Z’s latest financial year, it said.
Last week, Z reduced its operating-profit forecast for the new financial year to March by
$50 million, citing ‘‘unprecedented levels of discounting and price competition’’ and lower refining margins.
The commission had ignored the fact that demand for fossil fuels would decline as motorists switched to more efficient vehicles including EVs, it said.
‘‘We agree with a lot of the draft report. We can’t agree with the draft findings on profitability.’’
Submissions on the draft market study are being released by the commission amid expectations that the price of petrol could rise by between 5c and 10c a litre within a day or two as a result of drone attacks on Saudi Arabian oil facilities on Saturday which pushed up the price of oil by 13 per cent during early trading yesterday.
One focus of the commission’s draft report was whether Z, BP and Mobil should be forced to expand a ‘‘borrow and loan’’ arrangement under which they share the use of each other’s fuel terminals, to allow more petrol retailers to participate in that scheme.
Bennetts said it was suggesting terminal gate pricing as an alternative, ‘‘cleaner’’ approach.
Allowing more companies to participate in the borrow and loan scheme would add complexity and make it harder to match supply and demand, he said. ‘‘You also start to diminish the incentive to invest. Part of our concern with the system as it is, with the current three players, is you don’t need to invest in more tankage yourself, you can simply borrow someone else’s and if we all took that approach then no-one is investing and the system comes under stress.’’
BP also accused the commission of ‘‘errors of fact and reasoning’’.
‘‘Fuel retailers have not made ‘excess profits’ over time,’’ it told the commission. ‘‘While profits are higher at some points in time than others, the fuel market has a long business-cycle based on investments in long-lived assets.
‘‘Margins today are similar to margins in the late 1990s, which led to significant entry and lower margins in the following years until margins became unsustainable. Higher margins attract new entry, which is exactly what happened in the late 1990s and is exactly what the market is exhibiting today,’’ it said.
AA principal adviser Mark Stockdale said the Commerce Commission’s view that wholesale market interventions could lead to lower prices at the pump was ‘‘of great interest to many motorists’’ but the AA wanted more clarity from the watchdog in its final report on the size of the impact it expected.