Where was the Commerce Commission on petrol price overcharging?

by The Listener / 13 July, 2017
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There was little surprise when the Government-commissioned report on petrol pricing found fuel retailers are grossly overcharging. What raises eyebrows now is the decision to continue the inertia pending more official chin-stroking while the overcharging continues. Worse, it appears those who are paid to be watchdogs against such anti-competitive practices were not even on the case and will have to be given “special powers” just to start keeping an eye on petrol pricing.

Energy Minister Judith Collins deserves congratulations for commissioning the report as a priority upon taking the job. The report found the mostly foreign-owned petrol and diesel retailers had massively increased their profit margins, particularly in recent years, deterred only in areas where independent operators – 20% of the sector – competed. It was about as clear a case for regulation as could be imagined, especially given that fuel costs affect the price of everything in the economy. They also disproportionately hit lower-income folk, who must typically travel further to work, given vaulting inner-suburban housing prices.

That Collins proposes to await a further official report – meaning any decision is handily deferred until after the election – is therefore frustrating. In fairness, the campaign may not be the ideal time for the extensive consultation required to devise controversial regulations.

However, Collins’s expressed hope that retailers will voluntarily come into line in the meantime raises doubts about the Government’s genuine will to protect consumers. Sure, the companies may temporarily pull their horns in under the current discomforting public focus, but over time their margins will inevitably creep up again unless there’s a framework to restrain them.

More important, the public is entitled to ask why the Commerce Commission was not already on the case. Is this not its job – to monitor market practices and alert the Government to uncompetitive behaviour? Yet the Government tells us, as if this were an act of great beneficence, that it’s giving the commission special new powers to keep petrol pricing on its radar.

How can an agency purpose-built to ensure healthy competition not already have such powers? What else has it been unable to keep watch over because it lacks the authority? The Government should be embarrassed by this, especially given it suggested last year that the commission’s legislation might be reviewed and that has as yet come to nothing.

National-led Governments dislike regulating markets, but in an economy this small, where there are bound to be pockets of unhealthy sectoral dominance, being laissez-faire has political risk. There’s a veritable roll call of dominant companies whose behaviour causes daily grief to consumers, small business and the more vulnerable in the workforce. There’s the growing practice of big companies enforcing months-long delays in paying invoices. Fonterra and big building-sector companies have caused hardship, and the latter even business failure, with this practice, yet the Government remains aloof.

Our supermarket duopoly has immense power over suppliers, which countries such as Australia and the UK have now restrained, but not us.

An Aucklander this year successfully had the bill for his replacement car key slashed through civil action, because he could prove the carmaker’s markup was not reasonable. Although this is not precedent-setting in a legal sense, it’s exactly the sort of case that should make the commission and our legislators sit up and take notice. Every car owner suspects replacement parts are subject to routine price-gouging through lack of competition.

The commission is plainly not toothless: it just ordered Vector to repay nearly $14 million it had overcharged Auckland electricity consumers. But under its nose, fuel-price padding and much else of economic damage continues apace.

It’s true the Government makes more revenue than retailers from petrol. But the 68.3c per litre excise and transport tax benefits consumers in helping fund roading, road policing and public transport. Fuel retailers’ current overall margin of 47.6c per litre appears pure opportunism, given that at times in the past 20 years it’s been as low as 4c per litre.

The economic perspective is sobering: every extra cent per litre we pay for fuel equals a $30 million transfer from petrol buyers – us – to mostly foreign companies. But the issue is much wider than the price of fuel. This furore is yet another urgent cue to update and re-energise our competition watchdogs.

This article was first published in the July 22, 2017 issue of the New Zealand Listener.

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