Petrol price fleecing study likely to take at least a year

Thursday 29th November 2018

Any investigation into whether petrol consumers are being fleeced is unlikely to be completed before the end of 2019.

An amendment of the Commerce Act in late October gave the Commerce Commission the power to investigate competition in any particular market and it has been funded $1.5 million a year to carry out the work.

Earlier the same month Prime Minister Jacinda Ardern said the legislation had been prioritised given concerns about the fuel market and her belief that motorists were being “fleeced.”

Commerce Commission chair Mark Berry told MPs today that he expects to hear the government’s nomination for the first study next month.

He told Parliament’s economic development, science and innovation select committee that market studies are “really complex”, with some of those undertaken in Australia recently extending to 18 months.

The terms of reference for the studies would have to be “very carefully targeted” to deliver the quality required, and most would take a full year, he said.

“We will be under considerable pressure to deliver the kind of study that people want in that period of time.”

While that timeframe may be frustrating for some, there will be some public visibility of the work as it progressed. An issues paper would be published early in the process and the commission would aim to produce a draft report by August or September, Berry said.

The Labour-led government gave the commission the new powers after an investigation of petrol prices led by the Ministry of Business, Innovation and Employment last year.

It found that petrol prices were higher in Wellington and the South Island where there was less competition, and also raised concern that access to fuel storage may be limiting competition in some areas.

But the overall findings were inconclusive, with study authors the New Zealand Institute of Economic Research, Grant Thornton and Cognitus reporting that they could not be sure that fuel prices were reasonable but that they had "reason to believe that they might not be".

Political calls for action have grown louder in recent months as a combination of a weaker New Zealand dollar and rising crude oil prices pushed September pump prices to records in many parts of the country.

Speaking after the hearing, Berry was at pains to emphasise that the government has not yet set the fuel market as the subject of the commission’s first market study.

While one year is a tight timeframe for such studies, he said the commission had been gearing up and had already formed a team from within its staff to lead the work.

“Our goal is to do a thorough job within the 12 months,” he told journalists. “My expectation is that we can.”

Berry noted that, irrespective of a ministerial direction to undertake a study, the commission would be completely neutral in its approach and would address the issues with an open mind. No action may result from some investigations.

“It will be the evidence which will be directing our conclusions and recommendations,” he said.

An issue during the preparation of the new legislation was the degree of freedom the commission should have to pursue potential issues it saw in particular markets. Against that was the potential for the government of the day to initiate studies for reasons of popular politics.

Berry told the committee that the funding the commission has received and the time involved in each means it is unlikely to be initiating its own studies any time soon.

“With ministers already signaling market studies into several markets and funding allowing for only one study per year, we expect a full work programme for the foreseeable future in this field,” he said.

“This means that we are not having to use our self-initiation powers in future.”

That said, he expected that over time the commission and MBIE officials would collaborate to feed into the selection of topics for future studies to ensure efforts were prioritised correctly.

While in theory the commission could decline to undertake a study requested by the government, Berry doubted that would happen.

“It would be very unlikely that a minister doesn’t come to us with a market that is genuinely one that is appropriate for a market study. I think that’s the practical reality of it,” he told journalists after the hearing.

(BusinessDesk)

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