Relatively high level of consumer aversion, ACCC concerns about adverse impacts on competition and high adjustment costs for fuel retailers all suggest that it is now time to retire the state legislation mandating the sale of ethanol in NSW, says ACAPMA CEO Mark McKenzie.

It is no secret that the Baird NSW Government has been considering the future of the current legislation mandating the sale of ethanol in NSW for some time now, but the delay to the resolution of this issue is creating uncertainty for fuel wholesalers and fuel retailers in NSW.

While the State’s ethanol producer, Manildra, maintains that the current legislation should be expanded to address recent declines in overall sales of E10 there appear to be no logical reasons to support this view.

“Perhaps the biggest argument against continuing with the legislation is that fact that NSW motorists simply don’t like the fuel. Sales of premium fuels in NSW are now more than 40% of all petrol grades sold in that state – more than twice the national average – and this has occurred since the introduction of the ethanol mandate.”, says ACAPMA CEO Mark McKenzie.

“The fact that NSW motorists, who are typically price sensitive when it comes to fuel purchases, actually choose to pay more not to use ethanol blended petrol strongly suggests that continuing with the legislation in its current form makes no sense at all.”, said Mark.

In the biggest review of Australia’s competition laws in more than 20 years, the Australian Government’s Harper Review also noted that the Australian Competition and Consumer Commission (ACCC) believed that the operation of the legislation had unduly distorted competition in the NSW retail fuel market owing to the fact that some retail fuel outlets were required to sell the fuel while others were not.

ACAPMA maintains that any suggestion that this latter issue can be resolved by forcing all service stations to replace regular unleaded petrol with E10 would be catastrophic for the retail fuel industry and likely result in small business closures – particularly in regional and rural areas – and higher fuel prices for NSW motorists.

What the previous NSW Government failed to appreciate when this legislation was introduced some years ago, was that many fuel retailers must change storage tank and pump infrastructure to accommodate ethanol blended fuel – with no natural mechanism for recouping this investment.
The previous NSW Government also appeared to believe that the costs of this scheme would be borne by big oil and supermarket companies when, in fact, these costs must be borne by the numerous small businesses that are franchisees of these larger companies.

History has shown that these adjustment costs range from a somewhat modest $30k per site to more than $900k per site for some retailers, which would cripple most of the businesses not currently obligated to sell E10 under the existing legislation.

“If these costs were to be recovered from motorists instead, this action would need to occur on a site-by-site basis and ACAPMA estimates that this would likely push up the price of all petrol grades in some areas – particularly in regional areas where sales volumes were relatively low – by an average 8cpl for at least 3 years if commercial paybacks were to be achieved.”, said Mark

“While it is acknowledged that this may have a negative impact on Manildra’s ethanol operations in Southern NSW, the potential adverse impact on employment and small business viability in NSW would be far greater if any move is made to extend the requirement to sell ethanol blended fuel in NSW.”, said Mark.

“The central premise of the current NSW legislation is that the many small to medium fuel retail businesses that operate in NSW should shoulder the burden of the development of the biofuels industry and improve the profitability of Manildra. Such an approach is inherently unjust and is without precedent in Australia.”, said Mark.

The only entity to benefit from an expansion of the ethanol mandate is Manildra who, reportedly, are struggling to maintain good profitability despite Federal and State Government largesse provided over the last 8-10 years.

It is time for the Baird NSW Government to retire the current legislation and allow the market to decide the future ethanol blended fuels in NSW.