In 2017, the NZ Ministry for Business Innovation and Employment undertook a Fuel Market Financial Performance Study.

A group of external consultants comprising NZIER, Grant Thornton and Cognitus Economic Insight undertook the Study on MBIE’s behalf. The Study was undertaken following concern that a trend of steadily rising importer petrol and diesel margins since 2008 may indicate that retail customers in New Zealand are not paying reasonable prices for petrol and diesel. The Study was also prompted by the emergence of significant retail fuel price variations between regions in New Zealand.

The Study’s primary conclusion is that “we cannot definitely say that fuel prices in New Zealand are reasonable, and we have reason to believe that they might not be.”

Our study addresses three questions:

1. Are retail fuel prices reasonable?

2. What factors could explain regional differences in those prices?

3. Is there evidence of cross-subsidisation between products and markets?

One of the key focuses of the study was to determine if retail prices were reasonable by assessing a market Return on Average Capital Employed (ROACE) and comparing this market return to a market Weighted Average Cost of Capital (WACC). This analysis, based on financial information provided by the majors, would have then been used to determine if the market was earning significant returns in excess of the market WACC, which may have indicated that retail prices were unreasonable. However, we were not able to complete this analysis as financial data provided by the majors was not provided on a comparable basis. In addition, some of the majors were not able to provide sufficient information within the timeframes for us to report. We discuss the limitations in respect of data received in detail in Section 4 of our report. As a result of the limitations in data we have had to make qualitative assessments in conjunction with financial analysis to answer the questions posed. The limitations in data have meant that we have only reached tentative conclusions on each of these questions We can indeed identify features of the New Zealand fuel industry possibly giving cause for concern that consumers are not as well served as they could be. We can identify certain measures which might address at least some of these concerns, but with the information and time available it has not been possible to be more definitive, nor could we assess whether the benefits of all of those measures exceed their costs.

See the final report and other information below.

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