The Commerce Amendment Act 2018 amended the Commerce Act 1986 (the Commerce Act) to give the Commerce Commission the ability to undertake market studies to determine whether there are any factors that may be impeding competition in a market.
Market study into retail fuel
On 27 February 2020, the Government announced its decision to introduce changes to improve competition in the retail fuel market. The changes will be introduced through a Fuel Industry Bill.
The changes include:
- a more transparent wholesale pricing regime requiring fuel suppliers to publicly post the prices they sell to wholesale customers at storage terminals
- rules to ensure contracts between wholesale fuel suppliers and their customers are fair and support competition
- providing a dispute resolution scheme for the new regime
- improvements to the monitoring of the fuel market by requiring fuel companies to collect and disclose certain information
- requiring retail fuel sites to display premium fuel prices on forecourt price boards.
- Response to the Commerce Commission’s retail fuel market study: Fuel industry bill [PDF 358KB]
- Response to the Commerce Commission’s Retail Fuel Market Study: Proposed Fuel Industry Bill: Minute of Decision [PDF 241KB]
- Regulatory Impact Statement – Fuel Industry Bill [PDF 949KB]
- Response to Commerce Commission’s Retail Fuel Market Study [PDF 246KB]
- Response to Commerce Commission’s Retail Fuel Market Study: Cabinet Minute of Decision [PDF 209KB]
- Regulatory Impact Statement – Government Response to Commerce Commission’s Retail Fuel Sector Market Study – High Level Decisions [PDF 876KB]
2019 Ministers’ letters to fuel companies
On 5 December 2019, the Minister of Commerce and Consumer Affairs, Hon Kris Faafoi, wrote to each of the fuel companies encouraging them to start displaying premium petrol prices on price boards at their retail sites, ahead of new regulations requiring them to do so. This letter was sent to McFall Fuel, South Fuels, McKeown Group, Challenge Dealer Group, RD Petroleum, NPD Ltd, Waitomo Group, Allied Petroleum, Gasoline Alley, Gull NZ, BP, Mobil, and Z Energy.
On 16 December 2019, the Minister of Energy and Resources, Hon Megan Woods, wrote to BP, Mobil and Z Energy (‘the majors’) seeking their commitment to address the four recommendations in the final Retail Fuel Market Study Report directed at the majors and asking for a progress update by 30 March 2020.
Commerce Commission final report
On 5 December 2019, the Commerce Commission released its final Retail Fuel Market Study Report.
The Commerce and Consumer Affairs Minister selected the retail fuel market as the subject of the first Commerce Commission market study on 3 December 2018. The Minister considered it was in the public interest to require a study into this market, given factors such as:
- the more than doubling of petrol and diesel importer margins over the past decade which could not be explained by any significant increase in capital expenditure
- the size of the market (around 6 billion litres of petrol and diesel are consumed for land transport use annually)
- the inability of previous studies to definitively conclude whether or not there is a competition problem in the market
The Commerce Commission has made a number of recommendations aimed at improving competition in the New Zealand retail fuel sector.
A market study helps determine whether there are any factors that may be impeding competition in a market or markets for goods or services. Market studies focus on the structure and behaviour of the market itself, not the actions of any specific company.
Market studies allow for the identification of any factors that are preventing, restricting or distorting competition. Examples of such factors may include:
- costly out-dated regulations
- restricted access to key infrastructure
- widespread use of restrictive terms in contracts, or
- undue constraints on the ability of consumers to change suppliers.
Market studies are performed by more than 40 competition agencies worldwide. They provide governments and the public with an in-depth understanding of how sectors and markets work.
Initiating a market study
Under the Commerce Act, market studies can be initiated by the Minister of Commerce and Consumer Affairs or self-initiated by the Commerce Commission. In either case, the initiator must be satisfied that carrying out the study is in the public interest.
A study is considered to be in the public interest if it promotes the purpose of the Commerce Act – to promote competition in markets for the long-term benefit of consumers within New Zealand. Some or all of the following (non-exhaustive) criteria may be relevant:
- there are existing indications of competition problems in the market (such as high prices or low levels of innovation)
- the market is of strategic importance to the New Zealand economy or consumers
- it is likely there will be viable solutions to any issues that are found
- a formal Commerce Commission study would add value above work that could be done by other government agencies.
Process for undertaking a market study
Information about the process for undertaking a market study is available on the Commerce Commission’s website.
Timeframe for completing a market study
The length of time to complete a market study will depend on the specifics of the study, the terms of reference and the information and analysis required. An ‘average-sized’ market study will take around 1 year to complete.
Potential outcomes of a market study
The Commerce Commission must prepare and publish a final report setting out its findings.
The report might dispel views competition is restricted or distorted. Alternatively, it might confirm there are competition problems and make recommendations as to how competition could be improved.
The Commission recommendations are non-binding, but the Government will be required to publicly respond to the recommendations in a reasonable timeframe.