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Energy Minister Collins puts petrol prices under the microscope

Thursday 9th February 2017

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The Ministry of Business, Innovation and Employment will conduct a review to determine how fair petrol and diesel prices are at the pump, Energy and Resources Minister Judith Collins said today. 

“MBIE data shows that fuel margins have more than doubled over the last five years. The market study will report on fuel company returns and will include in-depth analysis of oil companies’ finances," said Collins. She said the study will focus on the returns on average capital employed against cost of capital, across different parts of each business. "It aims to determine if companies are making super-normal profits or not," she added.

Rising fuel prices were a key factor that helped push New Zealand's annual inflation rate back into the Reserve Bank's 1 percent to 3 percent target band in the fourth quarter of last year. Annual inflation was 1.3 percent and the average price of 1 litre of 91 octane petrol was $1.82 in the December quarter versus $1.75 in the September quarter. 

In late January, however, the Automobile  Association called on fuel companies to explain to motorists why the national price of fuel rose 5 cents per litre during January, despite no increase in commodity prices or a drop in the exchange rate. It also noted that some service stations had been substantially discounting fuel, leading to significant differences between regions. “At those prices, the service stations are selling it at or below cost. The AA suspects the rise in the national price – excluding any discount – is to help cover the cost of selling fuel at substantially lower prices elsewhere, and we’d like the fuel companies to confirm that.”

The Fuel Market Financial Performance Study is expected to be completed by the end of June. Collins said the study will help build a "more informed picture" but will require the industry to cooperate with MBIE. 

Listed service station operator Z Energy said it will welcome the clarity the study will bring and committed to participating. Z shares rose 1.4 percent to $7.10. 

Chief executive Mike Bennetts said it is important all participants in the industry’s profit pool were included in the study, including the low-cost, minimal infrastructure participants; the two-thirds of the retail service station market in the hands of independent business people; fuel distributors and the various participants in loyalty schemes across the country.  A prior MBIE study was carried out in 2008 and subsequent changes in operating models meant a much higher percentage of the industry’s profitability sits outside of the major companies, said Bennetts.

The terms of reference for the study are being consulted on with industry and will be finalised and released shortly.

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