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Waitomo favours more open wholesale fuel contracts

Wednesday 21st August 2019

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Waitomo Group says it would welcome greater freedom in fuel contracting proposed by the Commerce Commission, but it has doubts about the returns the regulator believes smaller retailers are making.

The discount fuel retailer, previously part-owned by Mobil, has been supplied by that company for more than 70 years and has a trusted relationship with it, operations manager Simon Parham said.

While it is hard to say whether the firm might have changed supplier previously if it had a wider range of options, he said the firm today is different to that which initially evolved from the old industry joint-venture arrangements.

Even if it did not change supplier, Parham said having the ability to test the market would give it confidence it was being offered fuel at a competitive price.

“I think we would welcome greater contractual freedom,” he told BusinessDesk. “That doesn’t mean you have to exercise that right to use another supplier, but it gives you the ability to see if you are getting the right price – or a fair price.”

The Commerce Commission believes all retailers – large and small – are earning excessive returns. It is consulting on a range of options it believes could increase competition in the wholesale market for fuel, which it believes would help put downward pressure on retail petrol and diesel prices.

It wants to see restrictive terms in the wholesale contracts offered by Z Energy, BP and Mobil – including exclusivity arrangements, terms longer than five years, and non-transparent pricing – removed.

It wants more transparency in wholesale pricing and pointed to the terminal-gate prices major Australian suppliers are required to publish for bulk sales as one potential option. It also favours an open mechanism for firms operating storage to be able to join the joint arrangements the major suppliers have for sharing fuel at terminals in different parts of the country and access to the coastal shipping that delivers supplies from the Marsden Point refinery.

Refining NZ chief executive Mike Fuge said the company is neutral on the commission’s proposals, which also included reducing information sharing among the major users of the refinery and making the volume allocations there more responsive to changing market shares.

Fuge was pleased the commission appears to recognise the importance of the refinery and the need to get maximum utilisation from it and the fuel pipeline into Auckland.

He said having clearer wholesale pricing around the country could provide an opportunity to further optimise the fuel supply chain and the refinery could play a role in that.

Waitomo operates more than 60 petrol and diesel stops, mostly in the upper North Island. It sells more than 200 million litres annually, opened its first outlets in Wellington this year and plans to open its first in the South Island early 2020.

The commission believes the returns on capital of smaller firms like Waitomo, GAS and NPD are more than twice the industry’s cost of capital and higher than those of the major suppliers.

Parham said Waitomo is yet to understand how the commission calculated that level of returns.

“We’re certainly not seeing that over our total business,” he said. Gull and Z Energy have also queried the commission’s estimates.

Parham said the company is keen to work with the commission to understand what it considers a reasonable return, and highlighted the risk of unintended consequences were low-cost firms like Waitomo to stop investing in new outlets.

He noted that reducing complexity is important in offering low prices, and he doubted the firm would ever take fuel supplies from more than one operator. Nor was the company likely to move into mid-stream supplies with its own fuel storage any time soon.

“It’s not on our radar,” he said. “At this stage we’ll be using other people’s storage.”

(BusinessDesk)

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