Petrol price: Wellington being taken for a ride

A bombshell government report into the fuel market shows Wellingtonians are paying more for petrol than anywhere else in the Organisation for Economic Cooperation and Development (OECD).

The report, produced for the Ministry of Business, Innovation and Employment (Mbie), found the price of fuel – ignoring taxes – across New Zealand was now the highest of the 35 countries in the OECD.

The figures put New Zealand prices slightly above Korea’s, at US70c (NZ96c) a litre. Australia pays around US60c (NZ83c), and the lowest cost for fuel is in the United Kingdom and Czech Republic, at under US50c (NZ69c).

In Wellington and the South Island, the gross profit margin on fuel at the pump had doubled to about 30 cents in the past four years, compared to 5c a litre elsewhere around the country, the report found. Higher profit margins in the South Island and Wellington were ‘‘not explained by higher costs in those areas’’, the study found.

Energy and Resources Minister Judith Collins, who ordered the report, said it had found ‘‘features which may not be consistent with a workably competitive market’’.

‘‘I don’t think it’s acceptable and I don’t think it’s logical, and I think what is pretty clear is that the more competition you have in the market, the better the market can operate,’’ Collins said.

Labour economic development spokesman Stuart Nash praised Collins for ordering the report when he said other ministers had not.

Fuel vouchers and loyalty schemes may be helping turbo-drive petrol companies’ profit margins and be working against the interests of consumers, according to the report, written by economists and consultants at NZIER, Grant Thornton and Cognitus Economic Insight.

Nash said consumers would be better off if such schemes were scrapped, as it would increase the pressure on petrol companies to offer ‘‘everyday low prices’’.

AA spokesman Mark Stockdale argued the ‘‘popularity’’ of such schemes showed they were in the best interests of motorists.

‘‘In some of those schemes the discount is not all funded by the fuel companies.’’

The study didn’t say for sure whether fuel prices were reasonable or not, but Collins noted the report’s authors said ‘‘we have reason to believe that they might not be’’.

That conclusion, though tentative, could spell big trouble for petrol companies. Z Energy’s shares dropped 3 per cent to $7.65 when trading opened on the NZX yesterday.

The average Kiwi family spends $42.30 a week on petrol – only $8 less than their average weekly spend on meat, fruit and veggies.

Officials would assess the report’s recommendations and report back by November, Collins said.

The recommendations included technical changes to the wholesale market for petrol. These would mean petrol retailers had less information about their competitors and would make it easier for independent retailers such as Gull to compete in more places.

The Government could also order the Commerce Commission to undertake another study of the market, using new powers it intended to give the watchdog. The Mbie study had been unable to come to firm conclusions because of difficulties comparing information provided by companies and because ‘‘some very specific information that was required could not be obtained,’’ Collins said.

But an amendment to the Commerce Act proposed last week would give the commission the power to conduct market studies and compel companies to provide comparable data.

Most fuel companies were yet to respond in detail, however BP New Zealand managing director Debi Boffa said it believed it was earning ‘‘a fair return’’.