Darwin motorists have been paying significantly more for fuel than they should have been in a competitive market, according to the Australian Competition and Consumer Commission’s report into the city’s petrol market.
In comparison with Australia’s five largest cities, Darwin regular unleaded retail petrol prices in the two years 2012-13 to 2013-14 were around 10¢ a litre higher than they had been over the previous decade.
ACCC Chairman Rod Sims says that given petrol retail site profits in Darwin were already significant, it seems that motorists were paying around 10¢ a litre more than they should have been in a competitive market.
“This had a significant impact on motorists in Darwin: the report indicates that the higher retail prices added around $9 million per year to their petrol bill,” he said.
The high retail prices in Darwin were reflected in high profits. In 2013-14 (the latest financial year data available) the net profit per site (based on all fuel and convenience sales) in Darwin was around $1.2 million. This compares with Adelaide where average profits per site for most of the same companies in 2013-14 were between $100,000 and $200,000.
The high profitability of retail sites in Darwin during this time was mainly achieved through high margins on petrol sold.
“There were essentially two main reasons for the high prices and profits in Darwin,” Mr Sims said.
“These were the decrease in the number of independent retail sites, and weak retail competition.”
The number of independent retail petrol sites in Darwin decreased from 10 to three between March 2007 and May 2015. As a result, the Darwin market became much more concentrated.
“While there were 39 retail sites in Darwin in May 2015, in recent times only four retailers [Puma Energy, Coles Express, Woolworths and United] set prices for 97 per cent of the petrol sold in Darwin,” Mr Sims said.
A significant change occurred in the Darwin petrol market in mid-2010 when Archer Capital became the major shareholder in Ausfuel, which was subsequently acquired by Puma Energy in March 2013. The relatively weak retail competition in Darwin was due in part to the presence of a large player (Ausfuel, then Puma Energy) that generally increased prices at its sites as a block.
“It appears that after Archer Capital became the major shareholder of Ausfuel in mid-2010, Ausfuel was most often the leader of petrol price increases in the Darwin market,” Mr Sims said.
“This pricing strategy was accommodated by the pricing behaviour of the supermarkets – Coles Express and Woolworths – who in general quickly followed price increases by Ausfuel and Puma Energy.”
Mr Sims says the study provides some important insights into the level of competition required to ensure petrol markets work effectively in the interests of motorists.
“Since the October 2014 Northern Territory Fuel Summit, and the announcement of the ACCC’s market study in March 2015, retail pricing behaviour in Darwin changed,” he said.
“Monthly average petrol prices in Darwin in June 2015 were 134.9¢ a litre, which was 5.7¢ a litre lower than in the five largest cities. This was the first time that monthly average Darwin prices were lower since the ACCC started to regularly collect Darwin prices in January 2000.”
In October 2015, Darwin motorists paid on average just under 3¢ a litre more than motorists in the five largest cities. This compares with an average difference of almost 20¢ a litre in 2013-14.
“This study shows the benefits of market studies and transparency,” Mr Sims said. “Although pricing to achieve very high margins is not against the law, it can be helpful in some circumstances for the ACCC to highlight where competition is inadequate. This is especially so where consumers are paying higher prices than they should be, particularly where significant public interest has been expressed.”
In December 2014, the then minister for small business, Bruce Billson, gave the ACCC a new direction to monitor the prices, costs and profits of unleaded petroleum products in Australia for a period of three years.
The Darwin report is the first regional study conducted under the new petrol-monitoring arrangements announced by the Government in December 2014. The ACCC is currently working on market studies in Launceston and Armidale.