Market study into retail fuel
In February 2020, the Government announced its decision to introduce changes to improve competition in the retail fuel market. These changes have been implemented and further improvements are now underway.
Changes under the Fuel Industry Act 2020
The Fuel Industry Act was passed in August 2020 with a suite of regulatory changes to improve the transparency of engine fuel markets and fairness in wholesale contracting. These changes were based on recommendations from the Commerce Commission’s 2019 market study into engine fuel markets.
Changes brought in under the Fuel Industry Act include:
- a terminal gate pricing regime that requires certain fuel suppliers to publicise the wholesale prices of fuel at storage terminals to achieve more transparent wholesale prices
- rules to ensure contracts between wholesale fuel suppliers and their customers are fair and support competition
- providing a dispute resolution scheme for the new wholesale pricing regime and wholesale contract rules
- improvements to the monitoring of the fuel market by requiring fuel companies to collect and disclose certain information
- requirements to display information on the price of fuel at petrol stations including displaying premium fuel prices on forecourt price boards.
This follows a discussion document, released in March 2020, which sought feedback on the content of regulations under a Fuel Industry Bill and other matters. Feedback was used to inform the development of the regulations and the regulatory backstop.
- Fuel Industry Bill: Further policy decisions and approval for introduction [PDF 194KB]
- Fuel Industry Bill: Further policy decisions and approval for introduction – Minute of Decision [PDF 248KB]
- Annex to Regulatory Impact Statement: Government response to Commerce Commission retail fuel sector market study [PDF 321KB]
- 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: Minute of Decision [PDF 209KB]
- Regulatory Impact Statement – Government Response to Commerce Commission’s Retail Fuel Sector Market Study – High Level Decisions [PDF 876KB]
Developing a regulatory backstop
The terminal gate pricing regime that was brought in under the Fuel Industry Act makes it easier for new participants to enter the market and for existing fuel sellers to expand into new areas around the country.
However, as noted by the Commerce Commission in its retail fuel market study, there are risks to the success of the terminal gate pricing regime. Wholesale suppliers could use it as a vehicle for price co-ordination or could set terminal gate prices that reflect their market power, particularly at isolated terminals.
MBIE is developing a regulatory backstop to discourage excessive prices in the wholesale fuel market that will ultimately lead to benefits for motorists over the medium and long term.
The regulatory backstop will:
- Empower the Commerce Commission to conduct an inquiry into terminal gate pricing at particular terminals if it believes excessive prices are being offered. Alternatively, the Minister of Energy and Resources could request the Commerce Commission conduct an inquiry.
- Following an inquiry, the Commission could then recommend that terminal gate prices of one or more wholesale suppliers should be regulated.
- If the Minister of Energy and Resources agrees that terminal gate prices should be regulated, an Order and Council may be made prescribing that one or more wholesale suppliers are subject to regulated terminal gate prices. The Commission would then set a pricing principle or method that the wholesale supplier must use to set its terminal gate prices.
- The wholesale supplier could face a pecuniary penalty if it breaches the regulated prices.
MBIE is also investigating how to further refine the information requirements on fuel companies, so when margins increase, it is clearer whether this is a result of increasing profits or increasing operational costs.
The Cabinet Paper provides more information about the regulatory backstop including how it works and next steps of its design.
Commerce Commission’s fuel market study 2019
On 5 December 2019, the Commerce Commission released its final Retail Fuel Market Study Report.
The Minister of Commerce and Consumer Affairs 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 made a number of recommendations aimed at improving competition in the New Zealand retail fuel sector.
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.