Fuel prices in the Northern Territory are always a hot topic. Much of this ‘heat’ is due to concern that Territorians appear to be paying more for their petrol and diesel than those living in other Australian States and Territories (ironically, at the time of writing this article, average regular unleaded petrol prices in Darwin were the lowest of all Australian Capitals due to the other cities being at the high point of their price cycles).
The reasons for this discrepancy are varied and they have been explored at length by various NT Government Inquiries, with industry and the ACCC advising that much of the variance has to do with the costs of servicing a relatively small market with a significantly lower demand than Australia’s larger capital cities.
Shortly after the 2016 Fuel Price Inquiry, the NT Government enacted the Consumer Affairs and Fair Trading (Fuel Retailers) Regulation 2017. This regulation requires fuel retailers to provide real time fuel pricing data to motorists, so that motorists can make informed choices about where they purchase their fuel (The Regulations first came into force on 1 November 2017 under the banner of the MyFuelNT initiative).
“Since the introduction of MyFuelNT in late 2017, NT politicians have continued to criticise our industry for what they perceive to be anomalies in fuel prices and ACAPMA and other industry participants have responded to these issues in good faith”, said ACAPMA CEO Mark McKenzie.
One anomaly that if often cited as cause for concern, for example, is the fact that average fuel prices at the two service stations in Katherine are consistently lower than the average price of the numerous service stations in the Darwin metro area.
“This particular anomaly demonstrates the lack of understanding amongst politicians (and the broader community) about the fact that, although fuel businesses sell the same product, there is substantial variance in their business costs and their revenue – which is then reflected in a variance in pump prices in businesses that may appear the same”, said Mark.
The three service stations in Katherine for instance, cater for very significant freight activity. Their higher annual fuel volumes and higher proportion of sales of non-fuel items (i.e. grocery and prepared food) means that they don’t need to earn as much unit margin above the wholesale fuel prices as metropolitan businesses in Darwin – that is, businesses that operate with significantly lower annual fuel sales and a lower proportion of revenue from non-fuel products.
“But the Katherine servos compete with Darwin for their freight customers and are therefore incentivised to keep their prices as low as possible to leverage their inherent competitive advantage”, said Mark.
One of the principal challenges faced by ACAPMA – and indeed the Australian fuel retail industry overall – is communicating the fact that the national service station network isn’t operated by the five or six big brands that everyone sees. Rather, Australia’s nearly 8000 service stations are operated by 3980 businesses of varying size – all of which have variable cost structures and revenue mixes.
This variability in business size and cost structures essentially defines the competitive dynamic that exists in various capital city and regional markets around Australia. It can also see businesses of varying size that are displaying the same brand, competing with each other for volume.
“Within this context, the recent tabling of a draft Bill in the NT Parliament (i.e. the 2022 Fuel Price Disclosure Bill) is alarming. It demonstrates a dangerous lack of understanding of the competitive structures of the Australian fuel retail industry and risks significant unintended negative consequences for NT fuel consumers”, said Mark.
The risk of the Bill is compounded by the fact that the draft Bill has been advanced without any industry consultation by the NT Opposition Leader. Industry, and indeed other stakeholders, have therefore not had the opportunity to communicate the likely negative market and consumer risks of the proposed legislation.
“Unfortunately, instead of consulting with stakeholders the NT opposition has this week released a petition calling on Territorians to sign a petition for the NT Government to support the move – all done without advising them of the risk of likely unintended adverse consequences on fuel prices in the future”, said Mark.
The proposed Bill requires that fuel retailers (and their suppliers) be required to disclose their cost, their profit margins, and their pricing strategy to the NT Government in the future.
That means that a smaller fuel retailer, one that is able to compete with a larger retailer due to a shrewd fuel purchasing strategy and/or higher sales of non-fuel products to offset fuel costs, will be required to disclose its strategy to the market – effectively putting the very future of smaller NT-owned fuel businesses at risk.
Similarly, medium and larger fuel retailers that may be applying purchase strategies that give them an advantage over their competitors also risk having their competitive strategy exposed to their competitors.
In short, the 2022 Fuel Price Disclosure Bill is a bizarre proposal. It risks small business destruction in the NT and/or distortion of market competition in the NT Fuel Retail market. These two factors would likely result in a concentration of market competition and higher average fuel prices for Territorians in the future.
“These adverse competition consequences are fundamental to ACAPMA’s opposition to this draft legislation, but there are also practical issues that need to be explained in terms of how this data would be used in practice to lower average fuel prices,” said Mark.
“How, for example would the reported fuel profit margin of a service station business in Palmerston that earns 65% of its revenue from fuel and 35% of its revenue from non-fuel products, be meaningfully compared with a CBD business in Darwin that earns 85% of its revenue from fuel and 15% from non-fuel products”, said Mark.
“Obviously, ACAPMA will always oppose any legislation that places an unnecessary increased regulatory burden on its member businesses. “But this particular Bill is ill informed and risks concentration of market competition and consequent increased average fuel prices for Territorians”, added Mark.
ACAPMA calls on NT Parliamentarians to reject the draft Bill outright. At the very least, the draft Bill should be set aside pending the conduct of industry consultation and a genuine assessment of likely significant unintended adverse consequences for NT fuel consumers.
ACAPMA
Source: https://acapmag.com.au/2022/10/anti-business-and-anti-competitive-nt-fuel-price-law-proposal/.
