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ACAPMA PETROLEUM INDUSTRY REPORT COVID-19 FUEL PRICE CRITICISM IS BIZARRE The cost of selling petrol in Australia has doubled during the COVID-19 crisis while the price has gone down by 35 per cent in many markets, yet criticism abounds. T he past few weeks have brought more vitriol and ‘hate mail’ directed at the Australian fuel retail industry with some state/territory governments rushing to threats of new regulatory action if fuel prices are not automatically lowered to the levels that they consider to be reasonable. 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 issued an ultimatum requiring all fuel retailers to sell fuel below $1 per litre within days, or his government would introduce a maximum cap on fuel prices from the following week. These 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 136.2 cents per litre (cpl) at the start of March to 117cpl 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 at 15-year lows, yet criticism abounds, which is a bizarre reflection on the anti-business nature of the petrol price debate in this country. Noting that the federal government has not reduced the 42.3cpl fuel excise during COVID-19, this means the industry component (or non-tax component of retail fuel prices) in Darwin and Canberra has fallen by 22 per cent and 35 per cent respectively. It’s worth noting that these price falls occurred despite the national industry experiencing an average 50 per cent fall in petrol sales and a 30 per cent fall in diesel sales, which, given the costs of fuel retailing haven’t fallen, means the unit cost of fuel retailing has actually gone up. In simple terms, given that costs haven’t changed to retail fuel, the cost of selling petrol in Australia has doubled during COVID-19 while the price has gone down by 35 per cent in many markets. It’s hard to think of any other Australian retail industry that has managed to lower the price of its product by between 22 per cent and 35 per cent in the face of rising unit costs. But instead of being applauded for this action, governments around the country have sought to say the fall isn’t enough. In the larger capital cities, including Sydney, Melbourne and Brisbane, average fuel prices are around 91cpl. At this level, the federal government is capturing 50.6cpl in excise (42.3cpl) plus 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. Instead of acknowledging the challenges that come with falling revenues against fixed costs for fuel retailing, excluding wholesale prices, commentary contained in the ACCC’s latest report of the financial performance of the fuel retail industry included statements 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 3cpl – which equates to a profit of just $1.10 before tax profit per average 50-litre fill. There’s nothing magical about fuel retail. Revenue must cover costs plus a small profit, and the stated 3cpl before tax profit (an average of $105,000 per year for an average- volume metro site) is small when you consider 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? Or is it motivated by a desire for Australian governments to get involved in regulation of petrol prices. Within this context it’s worth noting that the combination of Australia’s highly competitive fuel retail market and a free market dynamic have delivered petrol and diesel prices that are among the lowest in the world. Conversely, in those countries where the government has intervened in setting or regulating fuel prices, they are among the highest in the world. It would be a brave government indeed that believes it could lower Australia’s average fuel prices below where they already are. More likely, its action would inadvertently increase fuel prices. But then, who are we to stand in its way? It seems the nation’s politicians are one step closer to doing this, which will bring on a whole different debate about why service stations have started closing in regional and rural areas of Australia. 64 CONVENIENCE WORLD MAY/JUN, 2020