Fuel Industry Bill

I move, That the Fuel Industry Bill be now read a second time.

This bill introduces changes to improve competition in the wholesale and retail fuel markets. The bill is a much-needed response to the Commerce Commission’s market study, which concluded that fuel companies have been making higher profits than would be expected in a competitive market, and there is limited competition in wholesale markets, and this flows through to the retail market, where there is wide variation in retail prices, particularly between different regions. Taken together, the features of this bill are designed to increase competition in the wholesale market and, over time, lead to lower fuel prices to consumers. The bill introduces changes to wholesale market arrangements in the fuel sector to improve transparency of pricing and to ensure that wholesale contracts are transparent and fair.

The measures in the bill will allow dealers and distributors to switch suppliers more frequently, increase competition between majors and other importers, make entry easier at the wholesale level, and support the development of a more competitive fuel market. The bill also introduces requirements for the display of the price of fuel at retail sites and requires some fuel industry participants to collect and disclose information to the commission and the Ministry of Business, Innovation and Employment.

The Finance and Expenditure Committee has examined the bill and has unanimously recommended that it be passed with amendments. I’d like to acknowledge and thank the members of the committee and its chair, Dr Deborah Russell, for their hard work and consideration of the bill. I’d also like to thank all those who made a submission on this bill. I support all the changes recommended by the committee and I’d like to briefly comment on some of the more significant changes that occurred at committee.

The committee reaffirmed that it is necessary to allow the scope of the key term “specified engine fuel” to be refined via the regulations. The regulation-making power allows different fuels to be added or removed from the list of specified engine fuels and to be regulated by the new regime. However, the committee was concerned that the regulation-making power could be used to cover fuels that were never intended to be regulated by this bill. The committee proposed appropriate safeguards for regulation-making powers related to engine fuel. As a result, the committee recommended inserting a provision to stipulate that the Minister, when adding a new engine fuel to the list of regulated fuels, must be satisfied that a significant proportion of the relevant engine fuel is used by motor vehicles.

This change is important as it will prevent the use of regulations expanding the scope of the legislation beyond what Parliament has intended. Additionally, clauses 19, 21, 25, and 45 empower the Minister responsible for the administration of the Act to make regulations regarding various features of the bill.

Several submissions on the bill requested that it require the Minister to consult affected parties on regulations made under the bill. The committee has recommended clarifying in the bill that the Minister is required to consult with fuel industry participants and have regard to the purposes of the Act and its subparts where relevant before making regulations. This will ensure that regulations can only be made if they are necessary or desirable to promote competition for the benefit of consumers, including providing transparency in retail fuel prices and monitoring the performance of engine fuel markets where relevant.

Clauses 16, 17, and 18 of the bill provide exemptions from new obligations in relation to wholesale contracts, where a contractual provision is necessary to allow recovery of investments made by the supplier to support the reseller or to protect the reasonable interests of the supplier. Under the bill as introduced, the burden of proof would lie with the plaintiff, who would usually be the reseller or the Commerce Commission in proceedings related to one of these clauses.

The committee has recommended that the burden of proof be reversed in proceedings under the Act that relate to these clauses. If relying on one of these provisions, then the defendant, and not the person bringing the proceedings, must, in the event of a dispute, provide that the contractual provision is reasonably necessary. A wholesale supplier will be in a better position to satisfy this burden of proof than the Commerce Commission or a reseller, as it would have access to the necessary information to support the exemption.

The committee has also recommended clarifying that the bill does not enable price-setting through regulations. Submissions raised concern that the bill would allow the regulations to be used to control wholesale prices. The policy intent is to make price setting more transparent, but it is not intended to set prices through this legislation. Requirements prescribed in regulations will only include aspects such as the form, timing, and process for posting of terminal gate price and requires to make clear how prices are calculated.

It is important that this bill be passed without undue delay to signal to consumers in the fuel industry that this Government is serious about introducing more competition into the fuel market. Consumers should be able to expect prompt action on such a significant area of personal expenditure, and taking some action is a priority for our Government.

Regulations will be required to bring the provisions of the bill into operation and will be developed as soon as possible. The bill provides regulation-making powers to prescribe a significant amount of detail of the bill, including minimum requirements for supply under terminal gate pricing, details for contractual requirements, information disclosure requirements, and requirements for the display of prices, including premium fuels. There will be opportunities for stakeholders to be involved in the development of these regulations.

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

Thank you, Mr Speaker. People would have heard from the speech of the Minister of Energy and Resources, the Hon Dr Megan Woods, how complex this matter is—a multitude of regulations in a market that’s very, very complex. I’d have to say that one of the comments that was most common from submitters during the hearing process was “How is it we get one week to prepare our submissions for such a complex piece of legislation?” I’d have to say that with just one week of submissions and, essentially, one week to hear them, this is a piece of legislation written by the Commerce Commission and officials. It’s very, very difficult for members of Parliament to really do a thorough job on this.

Look, I commend the Finance and Expenditure Committee for the work that they did do in trying to grapple with something which I think is quite complex. I’d have to ask the question: what was the big rush? Well, we know that New Zealanders don’t like to pay more than they ought, but I would say that when you look at the evidence and what has been submitted, not only through the select committee hearing process from submitters but also from the conference that the Commerce Commission ran for two days in, I believe, September 2019, there is actually quite a bit of dispute regarding the degree of competition that exists here in the country.

In fact, when the Commerce Commission came out with their report, I would have to say—as one person who sat through two days of that conference—I was quite surprised at what they had to say about competition in this country, particularly in the wholesale area, being weak. I think some of the comments that came through that hearing time and also following with the select committee were such as this, and we put it in our minority report from one fuel company: “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 from just the independent retail brands—being Gull, Waitomo, NPD and Allied—being built in the last five years alone.” So while I state those concerns, our position is that we reluctantly support this bill, because by and large everybody supported the terminal gate price mechanism that has been in Australia since 2007 to bring opportunity for new entrants to the market and to bring some transparency to the market. We believe in competition. Enabling new entrants and creating further transparency is not a wrong thing; it’s a good thing.

So on that basis we were prepared to support this bill, but we still have concerns about the process. We still have concerns about the assumption that the Prime Minister said in this House, or in this Parliament, that she believed that New Zealanders were being fleeced at the pump. In fact, about a month after that, we had the New Zealand Herald say in their editorial, “You’re probably not being fleeced at the petrol pump”, after they had some investigation—after they looked at the situation that was happening.

One of the other major fuel companies said this: “Margins and returns have increased at the start of this decade”—which is 10 years ago—“but we also observe that competition increased, and as a result, returns have declined.” That is the kind of standard way the market operates: if people see an opportunity, they enter into a market. But then, when competition rises up, people seek to be competitive; they drop their price. This is what was happening here in New Zealand. Look, this major company went on to say that across the 2016 and 2018 period, included in the draft report by the Commerce Commission as calculated by this company, they went from 12 to 10 percent margin. Last year, they declined to 8.5 percent margin. This year we forecast them to be about 7 percent. So those margins were already decreasing because of the active work of a competitive market.

So what we see here—and I’d have to say, I have huge suspicion around the urgency, around the rush not only of the select committee process, but here we are bringing this bill through second reading, committee of the whole House stage, and third reading all in one session under urgency because this Government wants to be able to say to the electorate, “We have addressed the issue of high fuel prices.” But the reality is, by evidence supplied by companies through the Commerce Commission and through the select committee process, that, indeed, those margins were softening and weakening because of a competitive market. It was already at work.

So we see that here we have just the potential of regulations being entered into. In fact, some of the submitters said, actually, the regulations that are being proposed in this bill could have the perverse outcome of increasing cost to petroleum companies that will increase the cost of petrol to motorists and consumers. We raised this issue with officials, and they came up with a degree of flexibility for the Minister in terms of regulations to be able to address those concerns that were raised. This is in regard to clause 45. Let me read it out to you—and it’s clause 45, “Differential regulations”: “(1) Regulations made under this Act may make different provision for different cases on any differential basis.” What does that mean? Basically, what that means is it’s an out clause for anything in the bill that has a perverse outcome of creating an opposite intention. It gives the Minister an opportunity to, basically, make different provisions for different cases on any differential basis.

It goes on, and it says, “(2) Without limiting subsection (1), regulations made under this Act—(a) may prescribe requirements for a particular engine fuel or a class or classes of engine fuels; or (b) may prescribe different requirements for different engine fuels or classes of engine fuels; or (c) may prescribe different requirements for different fuel industry participants or other persons, or classes of such persons; or (d) may prescribe different requirements for different retail fuel sites or classes of such sites.” What is this? I mean, yes, I think we welcome this because there are so many elements of this bill that actually work against the proposal of reducing the cost of fuel, and this proposed amendment from the Parliamentary Counsel Office, which the committee have accepted, gives incredible flexibility to be able to work around regulations or prescribe elements of the bill that may, in fact, lift the price of petrol.

The concern is that such a rushed process on such a complex matter kind of needs this major piece of intervention in the legislation to be able to get it through. In fact, I’d have to say in one session the officials said that, actually, the dispute resolution process prescribed in the bill is not really fit for purpose. We asked how long it would take to get it fit for purpose. They said, “We can’t do it within this term of Parliament; it’s going to require another Act of Parliament to come into this House.”

I mean, this is not what this Parliament ought to be doing: rushing through legislation for political purposes that then, later, has to be fixed up. I know we have amendment bills, but when you know it from the beginning, surely we could get it right.

Anyway, like I said, just in conclusion: we don’t think the market is broken. We don’t think motorists are being fleeced at the pump. They are paying significantly higher fuel taxes under this Government, though. I think the Commerce Commission did their best in a relatively short period of time, but didn’t get it right. The terminal gate price regime is broadly accepted; we support it because of that. The price is already coming down. We think it was too rushed. Thank you, Madam Speaker.

I wish to address some of the issues raised by the previous speaker, Jonathan Young. I note that, on the whole, they agree with this bill and that they are going to support it because of the terminal gate pricing mechanism. That is a good thing. I wish just to note that what this bill does is, in fact, prescribe that fuel companies must provide more information—they must provide more information to retailers, and retailers must provide more information to consumers. It’s hard to imagine a world in which more information is an evil; in fact, more information is usually a good thing. So this bill makes the wholesale pricing mechanism in the fuel market more transparent; so more information is very useful there.

It has rules in this bill to support fair contracts between wholesale fuel suppliers and their wholesale customers. It has a dispute resolution system. It requires fuel companies to collect and disclose information so that we can monitor the fuel market more effectively. These are all changes which create more information about the fuel market and make it more transparent. It’s hard to understand how that is a bad thing. What I invite fuel companies to do, instead of competing on the basis of differing levels of information, is to in fact compete on the basis of more efficient delivery systems, more efficient networks, and in fact better supply systems for fuel, rather than competing on information alone.

The previous speaker also raised concerns about the process around this bill, saying that it was rushed, but I point out that there was a Commerce Commission report; that, following the Commerce Commission report, there was extensive consultation by Ministry of Business, Innovation and Employment officials as to what should be in the bill; that, when officials first briefed us on the bill, they were able to predict with a high degree of accuracy what particular submitters would say, based on that previous consultation. So there has been an extensive process of consultation on this bill. Although it might have perhaps had a shortened process, there was no sense in which there was no consultation on this bill and no signalling as to what was going to happen. The entities that came and submitted to us were fully informed about the contents of the bill. So I am confident that the bill we have here is a good bill.

Finally, I just wish to thank all the people who were involved in the select committee process. In particular, I wish to thank the officials. The fuel market is complex, and they spent quite a serious amount of time explaining the fuel market to us, highlighting the points where there were issues, and helping us understand the bill. They were very patient with us as they did that. I would also like to thank all the people who made submissions on the bill and came and talked to us about the issues there, and to thank, of course, the members of the committee who worked on it with me. I would like to express here particular thanks to Mr Jonathan Young, who does have quite an in-depth understanding of the fuel market, and from the Opposition side of the committee, he brought that understanding to ensure that we actually did very well in terms of the process around this. So, without further ado, I commend this bill to the House.

Thank you, Madam Speaker. This morning, I was invited actually to an event in Dunedin from Waitomo fuels, who opened two service stations in Dunedin, and, unfortunately, I wasn’t able to attend because of my parliamentary commitments. But I did receive their media release this morning.

💬 Andrew Bayly: Hard-working MP.

That’s right—hard-working MP. Somebody’s got to keep democracy running. Certainly, this Government doesn’t appear to be doing much about it. I want to quote, though, from the press release that Waitomo sent out about the impact of their entry into the Dunedin market on the fuel price down there. It says, “We entered the Wellington market over 12 months ago and prices have dropped by up to 30 cents. As soon as we announced we were coming to Christchurch a year ago prices also dropped instantly. Now we’re seeing the same behaviour from our competitors in Dunedin—we reckon an 8-cent drop since our announcement.” So, if we needed any further evidence of the fact that the thing that is going to moderate fuel prices the most, it is the entry of competitors into the market, and my party strongly supports it.

There is a corollary to that, though. In my professional experience over a long period, one of the things that marks out commodities like fuel, like milk, things like that, is that from a competition perspective, pure competition and pure collusion look exactly the same. The prices go up and down almost immediately in pure competition because they want to be able to compete on price. But where there is collusion they do the same thing. And the reality is—and the Commerce Commission would probably accept this—that it’s very, very difficult to tell the difference between pure competition and pure collusion.

I, frankly, don’t think that anything in this bill—another lazy bill from the Government, which lays out a broad aspiration and then leaves two features. It leaves a lot to regulations to be written, and, as my colleague and friend Jonathan Young said, the possibility that a further bill needs to be brought back to this House in the next Parliament to give effect to some of its measures. But at the very least, it’s going to require regulations that may not see further scrutiny of this bill. That’s the first feature. And the second feature, of course, as Mr Young mentioned is the rushed select committee process.

Now, the answer from Dr Russell to that criticism was to say, “Oh, well, we had a Commerce Commission report and officials supported it.” Well, here’s the reality. The Commerce Commission are not accountable to the New Zealand public; we are. We are responsible for the legislation that we pass, not the Commerce Commission, good people, though they are. We also need to hear from those people who are going to be affected by that legislation and what they said when they came to the Finance and Expenditure Committee was that this is being rushed.

As was mentioned, the Prime Minister has said that consumers are being fleeced at the pump. Well, actually, that may have been the case some years ago, but it doesn’t appear to be the case now. According to the submissions by Z, from 2016 to 2018, Z returns, as calculated by them, went from 12 percent to 10 percent. Last year, they declined to 8.5 percent, and this year they’re forecasting around 7 percent. That’s hardly the sorts of margins that one would expect from organisations that are fleecing their consumers.

But if anybody is actually fleecing the consumer, it’s the New Zealand Government because they are the ones that are imposing the biggest contribution to the price of fuel at the pump through its motor vehicle fuel excise. And of course, in Auckland, they are absolutely being fleeced by the regional fuel tax, which has collected over a quarter of a billion dollars, and less than half of that has actually been spent on its intended effects. So if the Government was truly, truly keen to ensure that motorists aren’t being fleeced at the pump, they would be a little easier on them in respect of the punitive taxes that have been imposed on them by this Government.

We do support this bill, but we are concerned both at the haste and at the lack of consultation. And I have no doubt that we will be back here making improvements to it when the National Government is elected on 19 September.

Thank you, Madam Speaker. I’m really pleased to stand and take a call on the Fuel Industry Bill, and I do so on behalf of my colleague Fletcher Tabuteau, who’s on the Finance and Expenditure Committee that looked at this bill—which was ably chaired, I might add, by Dr Deborah Russell. In fact, there is a cast of many on that committee, so well done to all of those who managed to progress the bill and took care of all those submissions. I think there were 13 submissions on this bill, and they heard oral evidence from 10 of those. I acknowledge too the good work by the officials. We have heard in the House this evening that the fuel market is complex, so I acknowledge the work that was done to progress the bill through now to its second reading.

The fuel market might be complex, but for people like me who just want to get in my car and drive, it seems to be a really simple thing that the aim of this bill is a fuel market that actually works for the consumer. So it is really the focus of that consumer that I speak from on this bill. A failing fuel market means higher prices for everyday New Zealanders at the pump, so this Government is promoting measures designed to bring competition to the market and drive better prices. The suite of measures introduced by this bill, and the Government’s non-legislative response, will mean competition can begin to flourish, in fact, in the wholesale and retail markets, and those benefits then pass on to end-consumers at the pump.

So just a short contribution on my part, just acknowledging too the Minister of Energy and Resources, the Hon Megan Woods, for bringing this bill to the House. I’ll just finish with what she had to comment on in her reading: that the features of this bill are designed to increase competition in the wholesale market and, over time, lead to lower fuel prices for consumers. That doesn’t sound too complex to me. I commend the bill to the House.

I have to disagree with that very last comment from that member. It is a very complicated issue—very complicated issue, actually. I think the big thing about this is it revolves around the issue of terminal gate price. Of course, what we’ve done is basically nicked the idea from Australia and said, “Well, hey, it works in Sydney. It works in Melbourne. It’s got to work in New Zealand.” Well, actually, it doesn’t quite work that easily. I think that’s the big issue about this bill—that, obviously, everyone agrees that we need to have low fuel prices in New Zealand, and the consumers shouldn’t be paying more than they ought to, to use Mr Young’s good phraseology. But the question is we’ve still got to have a viable petroleum market. That means we’ve got to have successful companies. But the issue—and the mechanism that has been proposed in this bill—has still got some work to work through.

The issue around the terminal gate price is—the way it works in Australia, there’s a very active spot price for fuel. I know, Madam Speaker, you’d be very cognisant of this issue. Why we are supportive of the terminal gate price—the issue is that in parts of New Zealand, there is no spot market and there is a lack of capacity. So if you go to Nelson, for instance, as one area, there is no competition. In fact, there is no fuel operation or storage there at all—I think I’m correct on that, Mr Young. So the issue around certain parts of New Zealand—because of the way we’ve set up with our arrangements, the operation of this will be quite difficult to achieve.

I know there have been a lot of comments on it. We heard it on the Finance and Expenditure Committee. I think the one thing I would highlight—and this is actually from the report, the regulatory impact statement. The first one is—this is the comment that the officials have written: “The terminal gate price regime may impose additional costs (e.g. stock holding, investment, increased shipping frequency, or shortages for own-supply) which could lead to higher retail prices”—actually the opposite of what we’re trying to achieve—“if wholesale competition does not increase.” Moderate impact is the assessment of it. Then they talk about the “increased transparency of fuel pricing may facilitate collusion.” I thought, Mr Young, that was actually the opposite of what we’re trying to achieve. So I think, as members have already commented tonight, and, obviously, this is the second reading, the officials have basically said we rushed this through far too quickly. It’s going to take a long time to work out the regulation. That creates uncertainty. That is a poor thing. But anyway, I am looking forward to exploring that in the committee of the whole House.

Tēnā koe, Madam Speaker. I’m very happy to take a very short call on this to say the Green Party is supporting this bill. It makes sense to have greater transparency. We want the prices to be fair, and, of course, I know it’s very difficult for the Opposition to understand this, because they’re very keen on making up a long list of infrastructure projects they’re going to pay for, and yet somehow they don’t want to raise revenue to pay for it. So they’re constantly attacking a very, very fair and sensible petrol tax which enables us to pay for maintaining our roads, for our road policing, for building new roads, and for running public transport, which helps our entire transport network work better. So while the Opposition will demonise petrol taxes, we on this side of the House actually have a plan for paying for the things that we promise, very much unlike the National Party, and we’re actually taking action on the unfair pricing of petrol that that National Party refused to do anything about during the nine years they were in Government. So I’m very happy to be part of a Government that’s actually doing something constructive and has a plan.

Bill read a second time.

In Committee

Part 1 Preliminary provisions