In February the New Zealand Government announced its response to the Commerce Commission’s (Commission) 2019 Retail Fuel Market Study. The study was the first competition study under the new Commission powers so the Government response has been eagerly anticipated.
The Commission made 11 recommendations. The Government:
- agreed with 6 recommendations, which will be implemented by new legislation and regulations, including the Fuel Market Bill currently in draft and an enforceable industry code of conduct;
- acknowledged 4 recommendations, which have been passed on to the parties involved for responses; and
- will consider 1 recommendation further, which may require further policy work.
The Government has agreed to introduce new legislation and regulations that will:
- Institute a terminal gate pricing regime: all fuel suppliers at storage terminals will be required to set a daily spot price at which they must supply a minimum quantity of fuel to buyers.
- Australia has a similar regime in place.
- This is intended to increase wholesale price transparency.
- Change wholesale supply agreements: certain pro-competitive contractual terms will be required in wholesale supply agreements and certain anti-competitive terms will be disallowed.
- For example the Commission has recommended: wholesale contracts should permit a distributor to take a prescribed minimum percentage of their fuel from other suppliers; distributors should not be committed to wholesale contracts exceeding a maximum period without a right to terminate on notice.
- Monitor the display of discount pricing on price boards: the Government will get new powers to regulate or prohibit the display of discounted pricing if needed.
- At this stage the Government considers that direct regulation is not necessary, and monitoring will be sufficient.
- Adopt an enforceable industry code of conduct: to support the terminal gate pricing regime and other regulatory intervention.
- Improve transparency of premium fuel prices: retail sites will be required to display premium fuel prices on price boards.
- The Government has written to market participants to encourage them to put prices on price boards ahead of regulations.
- The Government will also consider further the need to improve information on when premium fuel should be used, recognising that further policy work needs to be undertaken first due to challenges in getting the relevant information for all vehicles.
- Improve information and record keeping: improved, standardised information will be collected and retained to improve the timeliness, cost and accuracy of regulatory intervention in the fuel sector.
The Government wrote to relevant parties seeking responses to these recommendations:
- Improve information on infrastructure sharing arrangements: the Commission recommended parties to infrastructure sharing arrangements to publish the existing process and criteria for third party participation in the infrastructure sharing arrangements.
- The Coastal Oil Logistics Ltd joint venture and ‘borrow and loan’ inventory sharing arrangements are named specifically as examples of infrastructure sharing arrangements.
- Review infrastructure sharing arrangements: the Commission recommended parties to infrastructure sharing arrangements to also review aspects of the ‘borrow and loan’ inventory sharing arrangements that may be disincentivising investment in shared storage.
- Regulation is not recommended at this stage.
- Change the Coastal Oil Logistics Ltd joint venture to reduce the potential for coordination: the Commission recommended the parties to review and change any information sharing arrangement that may lead to softening of competition.
- Change refinery capacity allocation: the Commission recommended Refining NZ’s Technical Committee to review and change any information sharing arrangements and mechanisms for allocation of refinery capacity that may lead to softening of competition.
Please contact us if you would like to discuss any aspect of the Commission’s findings on the fuel retail market or any of the Government’s proposed actions.