Fuel Industry Bill

on behalf of the Minister of Energy and Resources: I move, That the Fuel Industry Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. At the appropriate time, I intend to move that the bill be reported to the House by 21 July 2020 and that the committee have authority to meet at any time while the House is sitting except during oral questions, during any evening on a day on which there has been a sitting of the House; and on a Friday in a week in which there has been a sitting of the House; and outside the Wellington area despite Standing Orders 191, 193 and 194(1)(b) and (c).

On 5 December 2019, the Commerce Commission released its final report on the retail fuel market study. The commission’s reported indicated that fuel companies have been making persistently higher profits over the past decade than would have been expected in a competitive market, that there is limited competition in wholesale markets, and that this flows through to the retail market, where there is wide variation in retail prices, particularly between different regions. The report confirmed this Government’s concern that consumers are paying higher prices for petrol and diesel than could be expected in a competitive market. The changes this bill will make will address that, and we expect those benefits will flow through to motorists. The Government is introducing changes to the fuel industry to improve competition in the wholesale and retail fuel markets, and cumulatively these measures are designed to promote greater competition for the long-term benefit of end users of engine fuel products.

Consumers should be able to expect prompt action on such a significant area of personal expenditure, and taking such action is still a priority for this Government. Even during lockdown, consumers expressed strong concern about price drops in international fuel markets not flowing through to New Zealand retail fuel prices. We appreciate that there has been significant disruption to the fuel industry as a result of the COVID-19 response. However, as the country recovers, we expect the problems identified by the commission to persist, and we believe that intervention to stimulate competition remains appropriate.

The industry was consulted extensively in relation to the Ministry of Business, Innovation and Employment’s Fuel Market Financial Performance Study and in relation to the commission’s market study, and given that these issues identified by the commission in their market study seem entrenched and have significant impacts on consumers, we consider that it is important to address these issues quickly through this piece of legislation. While I acknowledge that the changes in the bill will not have an immediate impact on the prices faced by consumers, over time greater competition will deliver benefits to consumers.

The purpose of the bill is to promote competition in the fuel market for the long-term benefit of end users of fuel products. The measures in the bill will increase the ability and incentive for dealers and distributors to make switches more frequently, to increase competition between wages and other importers, and make entry easier at the wholesale level, and support the development of a more competitive fuel market. The bill introduces a number of changes to wholesale market arrangements in the fuel sector to improve transparency of pricing and to provide for rules to ensure that wholesale contracts are transparent and fair. These changes aim to increase wholesale market competition, which should, over time, lead to lower fuel prices for consumers.

The bill introduces a wholesale pricing regime known as “terminal gate pricing”, which requires wholesale fuel suppliers at a storage terminal to publicly post a price at which they will sell specified engine fuel to wholesale customers at that storage terminal on a spot basis. This regime will provide for greater transparency of pricing, through requiring posted prices for spots of sales of wholesale fuel, and could provide a source of fuel supply for potential new entrants to the retail fuel market.

This bill provides for a regime governing contract terms between wholesale suppliers and their wholesale customers to ensure that contracts are fair and promote competition. These changes will improve the ability of distributors and dealers to compete and to switch providers. The bill also provides for a disputes resolution scheme to address disputes relating to wholesale market changes in an accessible, independent, and cost-effective manner. The bill introduces requirements for displaying certain prescribed information relating to the price of fuel at retail fuel sites. Requiring better display of information at retail outlets will assist consumers to compare prices, thereby promoting competition in the fuel market. This bill provides requirements for fuel industry participants to collect and disclose certain information to enable monitoring of the fuel market and assist in determining whether competition is being promoted for the long-term benefits of consumers.

The bill also provides powers for the Commerce Commission to enforce the new requirements, including civil pecuniary penalties based on those in the Commerce Act 1986. Regulations will be required to bring the provisions of the bill into operation and will be developed as soon as possible alongside the passage of the bill through the House. The bill provides regulation-making powers to prescribe a significant amount of detail of the bill, including terms and conditions for supply under terminal gate pricing, details for contractual requirements, requirements for consumer information relating to the price of engine fuels, and information disclosure requirements. There will be opportunities for stakeholders to be involved in the development of these regulations.

The Government expects that, taken together, the changes proposed in this bill will increase competition in the wholesale market and, over time, lead to lower fuel prices for consumers. I commend the bill to the House.

Look, here’s the Government putting through legislation which they think is going to bring the price of petrol down in time. And guess what’s going to happen tomorrow? The price of petrol is going up. What marvellous timing—what marvellous timing.

Of course, this bill is going to the Finance and Expenditure Committee. And, of course, Deborah Russell will chair that and get it through in quick, sharp time.

ASSISTANT SPEAKER (Hon Ruth Dyson): I forgot to say the question is that the motion be agreed to. Carry on, my apologies.

Thank you very much, Madam Speaker. I was missing that moment.

Look, at the last election the pump price for a litre of petrol in Auckland was 205c a litre—$2.05 a litre. In January this year, it was over $2.49 a litre. And even after the global depression, with oil prices falling as they have through the floor, a litre of petrol is still more expensive now than under the last National Government. What we’ve seen, if you live in Auckland, is that your price has gone up under this Government, 25c a litre. All of that’s to provide a light rail service to Māngere, and I’m just wondering when that’s going to happen.

So here we see a Government in these last weeks of this parliamentary term rushing through a bill—a very complex bill, in fact—that came out of fuel market studies initiated first by the Hon Judith Collins, and then the Ministry of Business, Innovation and Employment, (MBIE), of course, did a report on that. Then, of course, the Commerce Commission looked at that and they ran a conference themselves last year and brought all the fuel participants in to that conference to hear what they said. Of course, you know, they did say a lot. In fact, as the Minister said, the Commerce Commission published its final report on 5 December, 2019, in which they came to the conclusion that the fuel companies had been making higher profits than would be expected in a workably competitive market. I was at that conference and I listened to those fuel market participants, and what many of them had to say to the Commerce Commission and the commissioners there was that this is incredibly complex and, “You’re not getting it, you don’t understand.” So they had individual, one-on-one meetings to go through the complexities of how this market works.

A number of them made, I think, quite striking comments. Z Energy, for instance, said, “Our view is that over time, the continued expansion of low-cost distributors like Waitomo, and others such as NPD, will deliver the much-needed price competition and choice consumers want.” And competition is much needed. Competition is very important. Competition is what maintains good service, good prices, and keeps the market honest.

What they reported to this conference, to the Commerce Commission—and BP said this—is that if the wholesale market was broken or if the majors enjoyed a structural advantage which impacted workable competition, we would not have expected to have seen a total of 76 sites, not from just the independent retail brands, being Gull, Waitomo, NPD, and Allied, being built in the last five years alone.

So the Government is saying there is not enough competition. Yet in the last five years, 76 new outlets from independent—not the majors;—fuel companies have been built in New Zealand. They don’t build something, they don’t invest millions of dollars, unless they can get a share of that market. And they have. We all know about the Gull effect. We all know when they come to town, the effect of competition. Competition is alive and well.

I think what’s happened is that this Government has seen an opportunity to charge out there on behalf of the consumer—time is running out, and an election is coming near, the price of petrol is going up tomorrow, and here we are in the House today and they’re beating their breast. And they’re saying that they’re doing the moral right and the moral good, but what they are not listening to is the fact that there are adequate elements of competition that are operating. Look, we all want to pay less, without a doubt. There wouldn’t be anybody on this side of the House who wouldn’t want to pay less, and that’s just the way it is. You know, here’s what’s happened in the last five years. Allied opened 16 new South Island and 13 new North Island sites. NPD opened 21 new South Island sites. Gull opened 12 new North Island sites. Waitomo opened 14 new North Island sites.

It’s interesting, you know, what we’ve seen. In fact, I’ve got to say what Waitomo said, and they made a very strong statement. They said, “Of course, one of the issues in regards to fuel price is excise taxes and regional fuel taxes. Taxes and other levies in New Zealand account for roughly 97c a litre of the pump price.” So that’s actually over half, if you’re buying 91. But what happens when the pressure comes on and prices go up? And it’s often because the international exchange rate. It’s often because of the price of oil on the international market. It’s often because of lots of internal market mechanisms that have to be grappled with. It’s usually the fuel suppliers that get attacked. And, you know, they get sent to the principal’s office. They come to the Beehive. They’re marched upstairs and they are told, “Please explain.” So I think what we do need to understand is that this is a particularly complex area, and I do hope that the chair of the Finance and Expenditure Committee does a thorough job in three weeks in getting the committee’s head around the complexities of how fuel markets operate.

So what happens? They get criticised for taking too much margin. Well, BP, they reported—and look, I know I’ll probably get some smirks from the other side of the House saying, “Well, of course, they would say that.” But these are people who understand the market. They say that when margins were low, between 2000 and 2010, we saw—this is when low margins existed for the fuel suppliers—almost 400 retail sites close and the exit of Shell from the industry. More recently, as margins have restored, we’ve seen expansion and investment, as we would expect, resulting in consumers now having the benefit of the broadest range of offers ever.

What we need to understand in the competitive market is that unless people can make a margin, they won’t enter that market. So it’s important to have a degree of profitability. And so what the Minister’s saying, “Oh that profitability is far too high.”—but when that profitability was squeezed, 400 retail outlets disappeared. Where’s the competition? It’s gone, and you end up with a monopoly, and then prices do get elevated. So what we’ve got to understand is market principles. You know, this Government—in my final minute—have been very happy and ready to regulate everywhere over the energy sector, and this is just another example of that.

So in terms of terminal gate price, you know, I think a lot of people will support that idea, and visibility around that may be helpful. But it’s going to be interesting to see what that is going to do to prices, because in the conversations I’ve had with chief executives in the energy sector, in the liquid fuel energy sector, they have said, “Well, that’s happened in Australia, but we haven’t seen the effect come through in the market price.” So we can tinker, we can change, we can put different mechanisms in place, but the answer to all of this in terms of getting better pricing is having better competition. You’ve got to find the balance between having the right level of margin in terms of getting people into the market, and you’ve got to have people going in there who can get their slice of that market, and that’s what we’ve seen with the independents. We’ve seen a huge increase of those independent retailers over the last five years, so much so that many actually say that we do have a healthy, competitive market.

Look, we’re going to support this bill through to select committee, because we want to enable people to come and have a say, and I’m sure that’s what’s going to happen. I commend this bill, and I do trust that the committee will do a thorough job in the very short three weeks they have to report back with.

The National Party has never found a significant vested commercial interest that it won’t stand up and defend against the needs of the people of this country. Sometimes, it goes to a position of high farce, because I remember, actually, at the end of the last Parliament when the former Minister, Judith Collins, who Mr Young quoted—even she had to admit that the fuel market in New Zealand was not competitive, that it was “illogical”, and that it was “not functioning properly”. That was after, under the limp-wristed competition laws that that Government oversaw, they put in place a study that some of the fuel companies refused to participate in.

So it took this Government, this coalition Government, to actually step up to the plate, put in place a proper market studies regime—and I acknowledge the Minister, Kris Faafoi, who led that work as the Minister of Commerce and Consumer Affairs—which really lifted the lid on the way in which New Zealand consumers are being fleeced in this market. Unlike previous Governments, which have just kicked this can down the road, which have kissed up to the industry, we’re going to do something about that on behalf of Kiwi consumers.

It’s not just the Government which is saying these things; it is the Commerce Commission, which took a significant amount of time, which consulted with the industry, which consulted with the community, which engaged in a substantial market study, and which came to conclusions that this market was not functioning properly. So that is why we have this piece of legislation before us, and it’s why we will take action with this bill.

I do welcome the fact that the Opposition is supporting this bill to select committee, but I would encourage them to engage seriously in it, because Kiwi consumers out there expect to have functional markets that give them a fair deal and that don’t see them being fleeced by very large corporations. That’s the approach this Government will take, and I hope it’s the approach that the House takes over the course of this bill. I commend the bill to the House.

Thank you very much, Madam Speaker. It is a pleasure to rise on this side and support my colleagues and our party to support this bill to a select committee. Having actually listened to the speech by my colleague to my left Jonathan Young, who is actually very knowledgable in this area, I have to sort of admit that my contribution will be slightly less about the industry, because it is an industry that I don’t know very well.

But as a consumer and as a person who actually drives in Auckland, as a person who actually tries to find cheap petrol when I drive, often it is actually the boards that I see on petrol stations. Some of those boards are an indication. It is, actually, the way that a lot of consumers decide which petrol station they might go to. Some of them use apps—BP, for example. If you use the BP stations, they have a discount service. If you fuel $40, I think it’s like 4c or 5c off, and, if you continue to use it, you can actually build up to huge amounts of discount. I think at one stage I went up to something like 60c per litre discount to fill up petrol. There’s also an app called Gaspy, which also provides consumers plenty of opportunity for people to look at what gas stations are providing certain prices on any given day. I think that actually provides options for consumers to decide which petrol stations they might in fact go to at any given time.

Talking about competition and the availability of information out there, I think it is actually quite rich for the Government to come up with a bill trying to prove that there is actually a need for improving competition. As Jonathan Young said, in the last five years, there have been independent gas stations that have opened up—actually, a total of 76, I think he said. These are not big companies like BP or Shell or Z; these are actually independent ones like Allied Petroleum. Allied opened 16 new South Island gas stations and 13 in the North Island, Nelson Petroleum Distributors actually opened 21 in the South Island, Gull opened 12 on the North Island, and Waitomo opened 14 new ones. Talking about Waitomo, I have to say that some people really, really love the fact that they actually provide competition, and they actually only use independent gas stations, not the big ones.

Having said that, I have to say that competition is something we actually need. As competition intensifies, pricing will react accordingly. I think we actually support competition. But I think the biggest thing that this Government could potentially do to reduce the cost for consumers—the mums and dads of New Zealand, who actually look at prices and how expensive petrol is for that everyday use. Whether they take their children to sports on Saturdays or take the children to school or go grocery shopping, petrol is one of the high prices that people actually pay. If they actually wanted to reduce the costs for mums and dads of New Zealand, the first thing they should possibly do is axe the tax—axe the tax.

I thought the tax in the Auckland regional fuel tax was perhaps to support the light rail that they just decided to can.

💬 Hon Member: The what?

The light rail that they’ve decided to can. The whole idea about taxing Aucklanders more for fuel was to deliver the apparent light rail that was going to go from Dominion Road all the way to the airport, which is never going to happen, because this Government realised that they haven’t done the work, they can’t deliver on their promises. Phil Twyford, like KiwiBuild, cannot deliver light rail. So what they should really do is axe the tax, because the whole thing was about delivering for Aucklanders in terms of light rail.

Earlier, the Minister the Hon Kris Faafoi talked about the terminal gate price. The terminal gate pricing regime requires wholesale suppliers to post the price at which they will sell fuel to wholesale customers at storage terminals on a spot-price basis. The terminal gate price is quoted for fuel only and includes no added services such as delivery. The sector is actually widely supportive of the introduction of terminal gate pricing.

But, talking about the sector, I just want to raise this whole issue about the process this bill is taking. I guess we should be grateful that this bill—unlike the previous bill that was spoken about, that people debated in this House, the Electoral (Registration of Sentenced Prisoners) Amendment Bill (No 2), which never got a select committee process—will actually get a three-week select committee process. I suppose we should be grateful for that. I wish the select committee chair and the members of that committee best of luck.

This bill comes to us as a result of the Commerce Commission taking eight months to review the industry, providing a 400-page report that covered a whole wide range of issues which literally—I don’t know what it is about this Government—

I’m really sorry to interrupt the member. The House is only sitting till 10 p.m. tonight, unfortunately.

Debate interrupted.

Sitting suspended from 10 p.m. to 9 a.m. (Wednesday)