A federal government plan to pay oil refineries for operating in Australia could increase petrol prices for motorists and create competition issues, ACCC chair Rod Sims has warned.

Energy Minister Angus Taylor is putting the finishing touches on a proposal to pay oil companies for every litre of transport fuel they produce locally in a bid to boost Australia’s fuel security.

But while Mr Taylor claims the policy, which will be funded through a tax on the industry, will “shield motorists from higher prices” by keeping refineries open, the ACCC is worried it will have the opposite effect.

Speaking to The New Daily, Mr Sims said a market mechanism that taxed the overall industry would flow through to higher prices for consumers.

“The concern we have is that if you’re going to put a levy on fuel generally and pass that to refiners, well then of course you are going to … increase the price of petrol for consumers,” he said.

Mr Sims was not criticising the government’s attempts to promote fuel security, but is concerned the subsidies, which are still subject to change, will prop up refineries at the expense of petrol importers.

“Those who are purely importers might be worse off compared to those who have refineries, and of course those who are purely importers are usually the low prices player,” he said.

“You don’t want to disadvantage them. It could mean they’re not as aggressive in price as they normally are.”

Rod Sims is worried consumers could end up paying for a fuel security levy. Photo: AAP

Mr Taylor has already pledged $83.5 million from the budget to pay oil companies for each litre of transport fuel they produce Down Under, and hopes to finalise a market mechanism to fund the subsidies by July 1.

The government is worried the oil refineries will close without further taxpayer support, leaving Australia with even less fuel in its onshore reserves.

Over the past six months, about half of Australia’s remaining oil refineries have announced they will close, including BP’s Kwinana plant in Perth, which is the largest in the country.

There are now just two ongoing oil refineries in Australia, one of which (Ampol’s Brisbane site) is currently under review and could close.

The Morrison government’s $334 million fuel security package, unveiled in the 2020-21 budget, was designed to address this and included the aforementioned production payments and $200 million in grants to boost diesel storage.

The government will provide the money on the condition that oil companies store legal minimums of transport fuels in Australia and promise to maintain refinery operations.

“This package will benefit all Australians by ensuring they can access the fuel they need, when they need it, and support jobs across the economy as we recover from COVID-19,” Mr Taylor said in a statement.

Angus Taylor claims government policies will ensure access to transport fuels. Photo: AAP

Associate Professor Alexey Muraviev, a national security expert at Curtin University, agreed higher reserves were an important insurance policy, something demonstrated in the COVID-19 pandemic.

“As an island nation, if we’re going to be cut off from the rest of the world again, we can effectively sustain normal operations … for about two weeks,” he told The New Daily.

This is a question of our security and survival as a sovereign nation – I haven’t seen tanks running on electric power.’’

But Australia’s limited fuel security will likely be an ongoing issue even after the intervention, with subsidies and storage requirements likely to add weeks rather than months to emergency reserves, Professor Muraviev said.

Tony Wood, director of the Grattan Institute’s Energy Program, also questioned if the subsidies would fix Australia’s fuel security issues.

“We import much of the crude [oil] anyway, so it doesn’t solve the challenge of import dependence,” Mr Wood told The New Daily.

“The reason that domestic refineries have been closing is because they cannot compete with imported final products; it hardly seems likely that subsidising them would make the end products cheaper.”

If the government does decide to proceed with production subsidies, Mr Wood said funding the payments from the budget would be preferable.

Mr Sims also prefers public funding over a market levy, as although the former would create an impost on taxpayers it would not drive up petrol prices.

“If you’re going to do these sort of things, you pay for them out of the budget, not by passing them on to other people,” Mr Sims said.

Extracted in full from: https://thenewdaily.com.au/finance/consumer/2021/03/11/fuel-security-plan-petrol-prices/