Painted as price gougers, fuel firms deserve a chance
OPINION: One thing you can’t accuse Cabinet Minister Judith Collins of is complacency.
As soon as she got her mitts on the energy portfolio last December, she set about dealing to what she saw as the overly passive stance of her predecessor, Simon Bridges, to petrol retailer margins.
Fortunately for her, Tuesday’s deeply inconclusive report contains just enough criticism to produce the pre-election headlines an activist minister would seek.
The industry even played ball. Z Energy meekly removed a frankly meaningless ‘‘national price’’ from its website, giving the minister a tiny ritual win.
Of course, sticking up for petrol stations is unpopular. If they have to suffer the occasional public beating, where’s the harm if it keeps them on their toes?
Well, the harm is if the evidence is wanting.
Aside from some useful questions about why Wellington and South Island petrol margins are higher than elsewhere, this report is an exercise in carefully couched indecision.
Look at the language: The transport fuels sector ‘‘may not be consistent with a workably competitive market’’, it says.
Bizarrely, the report notes a profusion of new petrol retailers while suggesting their presence may be hindering competitiveness.
‘‘We cannot definitely say that fuel prices in New Zealand are reasonable, and we have reason to believe that they might not be.’’ Talk about a wet bus ticket.
Part of the problem was that the consultancies undertaking the work didn’t have time to complete it in the pre-election timetable it was given.
Complicating things was the fact that the various main players all record things differently, and some were apparently unable to answer questions because they didn’t already do so in-house.
While transport fuel margins have risen this decade, there’s a reason for that: They’d become wafer-thin to the point of threatening both maintenance and new investment in the infrastructure necessary to ensure secure supply.
Z Energy talked about this endlessly earlier this decade to justify the fact that it was increasing its margins – it’s not a secret.
The report backhandedly notes this by observing that when Shell still owned what is now Z, its strategy was to quickly lower prices when crude oil prices fell and only slowly follow competitors when crude prices rose.
‘‘It is possible that Shell’s strategy caused margins at the beginning of our study period to have been unduly suppressed, and that some of the observed margin increase since then was simply a recovery from that position,’’ the report says.
If so, that’s not proof of an uncompetitive market, but of a return to commercial sustainability.
Yet the report does not seriously discuss the fundamental question of whether returns on assets in the sector are reasonable or unreasonable. That is a gaping omission.
Bizarrely, it notes a profusion of new petrol retailers – a sure sign of growing competition – while suggesting their presence may be hindering competitiveness.
The report also fails to take into account the intense competition fostered by loyalty schemes, which as many as half of motorists are using to reduce the price they pay at the pump.
That dynamic cannot be so blithely ignored.
It seems inevitable now that the transport fuels sector will be subject to one of the first of Commerce Commission ‘‘market studies’’ in areas of competitive concern – a policy announced last week by Commerce Minister Jacqui Dean.
Yet with 21 brands of petrol retailer, you have to wonder why this makes more sense than a market study into, say, the supermarket duopoly, or a construction sector that’s incapable of building houses quickly or cheaply enough.
But facing a report that plays straight into negative perceptions that fuel retailers are duplicitous price gougers, the sector deserves a chance to clear its name.
Given the lack of conclusive evidence and the holes in the report published this week, it’s entirely possible that it will succeed. By then, of course, we’ll be well past the election. –BusinessDesk