We’d hate to play scrabble with ACCC chairman Rod Sims – he’d only have three words: unleaded, E10 (proper noun) and diesel. The bloke is obsessed with petrol.
On Wednesday he warned the multiple parties in an ongoing asset sale process – the one Morgan Stanley is running for Woolworths’ gas stations – that “any sale to any existing player is going to be extremely closely scrutinised by us”. Further, Sims expressed his preference that “a new player” buy the business.
Firstly, what on earth is the Viscount of Vaucluse doing wading into a live M&A process, offering potentially materially sensitive commentary? When there is a deal to be presented to the regulator, it will be, which is when Sims’ remit begins.
Secondly, his characterisation of the sector as “a reasonably concentrated market” is blind to recent diversification. Only three years ago, Swiss-Singaporean commodity house Trafigura dropped $800 million on second-tier sites in WA, South Australia and Queensland to emerge as third force. 7-Eleven isn’t far behind. More fool them.
Because thirdly, does he really think brand new capital is going to fall out of the blue sky and throw piles of cash at 500 petrol stations? Maybe a Kansas-based windmill giant? Or a cashed-up charcoal processor? Has Sims heard of electric cars? Or a bloke by the name of Elon Musk? There’s a reason why Gordon Cairns and his board are divesting – it’s a dying asset class. In 20 years, Woolworths will sell us fresh food, but nobody will still be selling (or buying) premium unleaded.
The retail price of petrol in Australia is intensely political. Kevin Rudd introduced the now defunct FuelWatch, and a since redundant Petrol Commissioner, while the ACCC is obliged to produce quarterly analysis of the petrol market. But to what end? Its analysis consistently finds that bowser prices correlate directly with fluctuations in the trading price of global crude, with a lag (funnily enough, it takes a while to ship oil, refine it into automotive petrol and get it to the pump). No way?!
Lucky us, Sims is now investigating why, with the global milk powder price at record lows, fresh white milk is so cheap. We can only imagine what groundbreaking conclusion he’ll draw there.
Sims’ one-eyed focus on market concentration – with zero-to-little regard for barriers to entry – is profoundly injurious to economic confidence, as is his deduced, unsophisticated philosophy that all big is all bad, whether banks, telcos, retailers or airlines. When the consumer cop calls a terminally ill sector with five big players “concentrated”, the newest (not the biggest) two of whom keep a floor under prices to guarantee returns on their invested capital, it’s little wonder Joe Public loathes commerce and all its actors. That aside, Rod’s doing a stellar job …
Extracted from the Australian Financial Review.