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Fuel prices probe

Thursday, December 07, 2017

THE New Zealand Government wants a detailed probe of fuel industry pricing, saying companies have overcharged by hundreds of millions of dollars.

To do that, it would pass legislation by the end of the year to increase the powers of the Commerce Commission, which would then investigate further.

It would also authorise lower level inquiries by officials in the meantime.

The announcement follows the release of the second part of an inquiry carried out by officials at the Ministry of Business Innovation and Employment.

"The update notes that over the last nine years, New Zealand has gone from having some of the lowest pre-tax fuel prices in the OECD to the highest," said Energy Minister Megan Woods.

"MBIE notes that the rise in margins since 2008 represents a transfer of wealth from consumers to producers to the tune of hundreds of millions of dollars," says Dr Woods.

The first part of the report said gross retail margins for petrol increased by 13 cents per litre between 2013 and 2017. Those prices were raised without matching capital expenditure, and were higher than price movements for other oil products, such as aviation and marine fuel, and bitumen.

After that report was published in July, the oil industry produced counter submissions and today's report is a response to those.

It said there were three options: doing nothing, ordering a Commerce Commission inquiry and imposing high-level government control, whose practical details were withheld.

The report favours the second option, saying New Zealand had moved in nine years from having pre-tax petrol prices in the bottom third of OECD countries to being the most expensive.

There had also been an increasing variation in retail prices between Wellington and the South Island, on the one hand, and the rest of the North Island, on the other.

"Amending the Commerce Act to give the Commerce Commission powers to conduct market studies, supported by information gathering powers, would be the preferred vehicle for undertaking this task," the report said.

"The Commission would also be best placed to decide what type of data and methods are best suited to determine the reasonableness of prices and market competitiveness."

The report added a caveat, saying the cost of such an inquiry would be considerable, its results could be challenged by the industry and it might not even provide a definitive solution.

But those risks needed to be set off against the current wealth transfer from consumers to fuel suppliers.

"The costs to consumers of doing nothing with pre-tax premium petrol prices now the highest in the OECD seems far more unsatisfactory," the report said.

"The potential wealth transfer from consumers to fuel suppliers since 2008 is likely measured in the hundreds of millions of dollars per annum."

The report recommended against one proposal: establishing a single market for everyone to buy fuel from.

This has been raised as a way of providing transparency and making sure companies did not do side deals on fuel supply.

Such a market would operate on the same principle as the share market and the electricity market.

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