Pricey petrol, even as oil drops, is all down to tax

THE price of oil has halved in the last year, but petrol prices are only down about 10 per cent. Why hasn’t the price of petrol fallen more? Just because the price of oil has halved does not mean the price of refined petrol has, and the New Zealand dollar is substantially weaker now than it was a year ago, offsetting some of the cheaper product price. The operating costs of the companies do not fall in line with the oil price either. On top of that, the margins charged on petrol are climbing. But the real reason prices cannot halve, under almost any circumstance, is tax. Based on the ‘‘national price’’ of regular petrol, currently $1.959 a litre, about 96 cents of what we pay is tax of one form or another. Worse still, most of it is fixed, meaning as the price of refined petrol falls, it is only the GST component of petrol which also drops. Put another way, in the event that petrol companies were effectively charging nothing for the fuel, motorists would still pay about 77c a litre, mostly in excise and GST. This includes 10c a litre of GST charged on excise tax, meaning motorists are paying a tax on a tax. Are we paying more for petrol than motorists in other countries? In some countries, mainly in the Middle East, petrol costs next to nothing. One reader claims that in Saudi Arabia motorists pay about 20c a litre. But internationally, among Western nations, the price New Zealand motorists pay is actually in the middle of the pack. According to figures from the Ministry of Business, Innovation and Employment (MBIE), in the first three months of 2015 New Zealand was the 13th cheapest out of 31 OECD nations for the retail price of petrol. While petrol is more expensive here than in the United States, Canada or Australia, it was cheaper here than in Britain, France or Germany. Are the fuel companies charging bigger margins than they used to? Yes. It is beyond dispute that since Shell sold its New Zealand business to Infratil and the New Zealand Superannuation Fund in 2010, the margins charged for petrol have increased substantially. Precisely by how much is a market secret, and MBIE changed the way it calculated importer margins in September, after years of grumbling from the fuel companies that its weekly figures were almost meaningless, as they paid no attention to discounting. The updated figures suggest that the margin, between a litre of petrol landed at the wharf and the pump price, has climbed from about 16c a litre to 28c a litre. The figure is consistently rising. From there the companies need to cover all of their costs, including transport by truck and the costs of running the petrol stations. Energy Minister Simon Bridges wrote to the fuel companies in February saying price drops had been too slow in coming, but margins have continued to increase since.

Do the petrol companies have good reason to increase margins? As some analysts have pointed out, if the fuel companies were making great profits in New Zealand, why would they want to leave? Shell has already sold out of New Zealand, and Chevron – which owns Caltex – is in the process of leaving. Mobil is also widely understood to have looked to sell its business here, but later withdrew from the process. For years companies were not making enough to justify investment here. But profits have clearly increased, as have the value of assets. Shell sold its business for just over $400 million. Now Chevron is selling its business – which is branded as smaller than Shell (which is now Z Energy) – for $785m. Over the last month shares in Z Energy, which trade on the NZX, have been changing hands for around $6.50 each, a 70 per cent increase in 12 months. Will margins continue to increase? The fuel companies are currently locked in a dispute over unpaid Customs duty which could cost the major companies $71m. The dispute relates to the way fuel is mixed during transport through a major pipeline dating back to 1986, but the cost of any impact is likely to be faced by motorists now. Although the petrol companies are considering taking Customs to court over its claims, one figure in the oil industry said that the fuel companies may already be seeking to recover the costs through higher retail prices. There have been some warnings that the case could add several cents a litre to the pump price.