This week saw more public ‘hate mail’ against the fuel retail industry. The antagonism, sparked by ACCC comments last week has led to politicians of all colours lining up to wack our industry in the public media for behaving badly.
Some State/Territory Governments have been emboldened to take unprecedented action. The Northern Territory Chief Minister, for example, has called all NT fuel retailers to participate in a parliamentary inquiry as to why petrol prices have not fallen as much as he believes they should have. In Canberra, the ACT Chief Minister has issued an ultimatum, requiring all fuel retailers to sell fuel below $1 per litre by Friday or his government will introduce a maximum cap on fuel prices from next week.
This ACT and NT moves come at a time when petrol prices are the lowest they have been in more than a decade. Darwin average petrol prices have declined from 136.2cpl at the start of March to 117.0cpl yesterday while in Canberra, average petrol prices declined from 144.2cpl to 110.3cpl over the same period.
“The current prices in both of these low volume markets are the lowest they have been in more than 15 years, yet criticism abounds which is a bizarre reflection on the anti-business nature of the petrol price debate in this country”, said ACAPMA CEO Mark McKenzie
Noting that the Federal Government has not reduced the 42.3cpl fuel excise during COVID 19, this means that the industry component (or non-tax component of retail fuel prices) in Darwin and Canberra has fallen by 22% and 35% respectively.
It is worth noting that these price falls occurred despite the national industry experiencing an average 50% fall in petrol sales and a 30% fall in diesel sales which, given that the costs of fuel retailing haven’t fallen, means that the unit cost of fuel retailing has actually gone up.
“In simple terms, given that costs have not changed to retail fuel, the cost of selling petrol in Australia has doubled during COVID 19 while the price has gone down by 35% in many markets, said Mark
“I defy anyone, be they ACCC Commissioner or Chief Ministers, to identify another retail industry that has managed to lower the price of its product by between 22% and 35% in the face of rising unit costs”, said Mark.
“Instead of being applauded for this action, Governments around the country have sought to say that the fall is not enough – and our industry is the one being called greedy”, added Mark.
In the larger capital cities – like Sydney, Melbourne, and Brisbane – where the price is apparently nearing the bottom of the petrol price, average fuel prices are around 91cpl.
“At 91cpl, the federal government is capturing 50.6cpl in excise (42.3cpl) and GST while the rest of the industry – the oil producer, the fuel refiner, the shipping company, the terminal operator, the fuel distributor and the fuel retailer – are all sharing just 40.4cpl”, said Mark.
The ACCC response to all of this in its report of last week highlights the anti-business sentiment that typifies fuel price commentary in recent years.
Instead of acknowledging the challenges that come with falling revenues against fixed costs for fuel retailing – excluding wholesale prices – the ACCC’s report of last week including commentary along the lines that motorists should punish servos by not buying any non-fuel products.
“These comments came on the back of the ACCC’s latest report highlighting that fuel retailers had earned the highest profit margin in 2017-18 for fuel sales at 3.0cpl – which equates to a profit of just $1.10 in before tax profit per average 50 litre fill”, said Mark
There is nothing magical about fuel retail – revenue must cover costs plus a small profit and the stated 3.0cpl before tax profit (an average of $105,000 per year for an average volume metro site) is small when you compare it with the fact that this profit is being harvested from an investment of between $4.5M and $5.5M for an average site.
All this negative sentiment gives rise to a single question – what is the end point of this political game? Is the desire of politicians to put fuel retailers – many of which are small to medium family owned operations – out of business?
“Because if it is, the ACCC and the Nation’s politicians are one step closer to doing so and that will bring on a whole different debate about why service stations have started closing in regional and rural areas of Australia”, Mark concluded.