The first in a new series of Regional Petrol Market studies was released by the ACCC earlier this week. The release of this study follows an announcement by the ACCC in March 2015 of its intent to conduct five ‘deep dive’ petrol market studies.
Earlier this year, the Australian Competition and Consumer Commission announced an intention to conduct a series of intense fuel market studies in five regional areas.
Darwin was nominated as the focus of the first study as a result of a Fuel Price Summit conducted by the Northern Territory Government in 2014. Subsequent announcements have been made with respect to the conduct of similar studies in Launceston (Tasmania) and Armidale (NSW).
After more than 6 months of data collection and analysis, the ACCC released the Darwin study this week, which can be viewed here.
The principal conclusion of the report was that, relative to the prices in five of the largest Australian Cities (i.e. Sydney, Melbourne, Brisbane, Adelaide and Perth), Darwin regular unleaded retail petrol prices in 2012-13 to 2013-14 were around 10 cents per litre higher than they had been in the prior decade.
The report went on to conclude that the higher retail prices meant that Darwin residents paid $9M more for their petrol than the corresponding years in the previous decade. Further, the report noted that these higher prices produced corresponding increases in gross profit for fuel retailers.
In examining the likely causes for this price anomaly, the ACCC report suggested that there were two primary reasons for the higher petrol prices and profits namely:
- A decrease in the number of independent fuel retailers, and
- A weakening in competition within the Darwin Fuel Retail Market over the last 10 years
“It is worth noting that the ACCC report does not conclude that charging higher prices is against the law but rather, provides evidence of reduced levels of competition in the Darwin market”, said ACAPMA CEO Mark McKenzie.
As per previous ACCC reports into the Australian Petroleum Industry, the report provides some useful insights about the operation of the petrol market in Darwin – but it also raises some questions.
“Perhaps the biggest question from our initial reading of the report is whether a longitudinal comparison of the petrol prices of a regional area with that of Australia’s largest capital cities is wholly valid”, said Mark
Specifically, it would have been good to see a comparison of growth in the cost of living in Darwin – relative to that of the other cities included in the comparison – to determine whether the increase is actually material in isolation, or is partly due to changes in the relative cost of living between Darwin and the cities to which it was compared.
“This is not to say that we are challenging the ACCC findings in this instance, as we note that there has been a marked and sustained correction to fuel prices in Darwin since the ACCC study was first announced”, said Mark.
“Rather, and noting that this is the first time our industry has had a chance to see the format and methodology of these regional petrol market studies, we would like to see inclusion of commentary around any differences in relative movement of CPI in the study region with those in the five capital cities used for comparison in all future reports”, said Mark
“It would also be good to better understand how, given the dynamic nature of fuel retail markets, material changes in business costs over time are isolated from the Study findings to ensure that there is an accurate demarcation between analysis of gross profit and net profit trends”, said Mark
“ACAPMA notes that the information gathering process used by the ACCC for these studies is necessarily significant but we also believe that all stakeholders have an interest in ensuring that these studies provide the best possible commentary on the nature of competition in each regional fuel market – and the opportunities for improving competition in the future”, said Mark
ACAPMA welcomes the release of this first study and, together with the industry, will continue to work cooperatively with the ACCC to increase the policy and strategic utility of these studies in the future.
For more information of ACAPMA’s policy positions click here or contact the secretariat on 1300 160 270.