The ACCC petrol price report

The ACCC’s report focuses on current petrol prices and pays little heed to issues like energy security, refinery viability or the environment. Have they missed something?

The commission’s main role on petrol pricing is to look at competition and how to achieve the lowest consumer prices. They aren’t required to give weight to these broader issues but they will become increasingly important for Australia. There’s a much bigger picture for the government to consider.

"The industry is fundamentally competitive"

ACCC Chairman Graeme Samuel has said that if competition was fully effective the impact on petrol prices would amount to a few cents per litre. Can prices go lower?

Competition is strong at all levels of the supply chain so lower prices are really only possible through further cost reductions. And we’re talking about fractions of a cent. Caltex’s average profit across all products is about 2.2 cents per litre, so it’s hard to see how price reductions of a few cents could occur unless the government is willing to lower the 50 cents or so tax per litre.

The commission would like to encourage imports by independent marketers. Is this a good idea?

We welcome competition – provided there’s a level playing field. There is nothing to stop any competitor, including independents, from building a customer base and importing fuel through their own or leased terminals. But this is a very competitive business. The large volumes required and high setup costs make importing challenging. And existing competitors can be expected to fight to maintain their customers and market share.

Could imports threaten Caltex’s business?

Imports from large new Asian export refineries are a major challenge for Caltex. Our concern is the ACCC appears to want to bias policy against local refiners in favour of new entrants to the market to achieve the lowest consumer prices regardless of the impact on the security of supply and the role of existing refiner/marketers.

If Australian refineries close, they will be gone forever. That would be disastrous for the nation’s energy security.

The ACCC has questioned buying and selling contracts between refiners. It suggests they keep prices up by effectively excluding independents and increasing their purchase prices. How do you respond?

We reject this suggestion. No one is excluded from negotiating for supply from Caltex. But the ability to negotiate supply at low prices reflects the bargaining positions of buyers and sellers. Prices are typically lower for very large volumes.

The ACCC found it is appropriate and desirable that wholesale petrol prices are based on the cost of importing petrol. Caltex buy-sell prices are very similar to actual import prices.

All this is pretty negative for Caltex. Did the report contain anything positive?

Yes, a great deal. But the positive content hasn’t received much publicity. And some commentators have focused on the doubts and questions. The report says the industry is fundamentally competitive. It found refiners earn reasonable rates of return, wholesale margins are narrow and retail margins are relatively small. That’s not the picture often portrayed in the media.

What about common complaints about pricing, such as the speed of response to international price changes. Are consumers getting ripped off?

Absolutely not. The ACCC found there is a strong relationship between retail petrol prices and the Singapore refinery price for petrol. There is no evidence of any systematic deviation of retail prices from the relevant international benchmark prices, though deviations do occasionally occur.

The full impact of movements in international prices may take up to two weeks to be reflected in local prices. The ACCC says the effect of price lags can work in both directions but this is seldom acknowledged. Consumers benefit when international prices are rising as domestic price increases are delayed.

"We understand that customers become upset when prices increase."

How about the weekly price cycle and the way prices seem to increase at the same time? Are oil companies colluding?

The ACCC found that many explanations for price cycles are consistent with competitive market behaviour and that the existence of price cycles does not provide evidence of a lack of retail competition.

They described price cycles as an “enigma” because they have no simple explanation. In our view the enigma is why people are concerned about a market that delivers highly discounted prices on a weekly basis. Many price-sensitive consumers take advantage of these cycles, but others don’t or can’t. The ACCC is to look at schemes to increase consumer price information.

What about allegations of price increases before public holidays?

The ACCC debunked the myth that prices increase before holiday periods, saying there’s little evidence to support the media claim that cyclical petrol price increases before public holidays are always higher than the cyclical price increases that occur at non-public holiday times.

Prices vary considerably between country and city. What does the ACCC say about this?

In general price differentials in seemingly “like” country towns may be explained by differing local competitive factors, including population sizes, the level of competition and the presence of discount retailers. This is consistent with what Caltex has said for many years.

So why do myths about petrol pricing persist in the face of strong evidence?

We understand that customers become upset when prices increase. That’s why we do our best to price fairly and explain why prices change.

Unfortunately not everyone does the same to inform the public. In the course of preparing the report the ACCC identified a concerning level of misinformation in the media reporting on petrol prices. It acknowledged that commentators on petrol prices have a responsibility to the members they represent to raise concerns. But this responsibility should also include a commitment to discourage myths and misapprehensions unsupported by evidence.

Any final comments?

We’ve worked very hard for many years to provide our customers around Australia with reliable supply at fair prices. We’re investing heavily in our two refineries, in terminals and in retail sites to maintain our competitive position and prepare for future challenges. And we have very good people to make all this happen.

From the government’s perspective, industry policy has to be looked at holistically. The ACCC’s report provides just part of the picture.

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