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ACAPMA PETROLEUM INDUSTRY REPORT FUEL PRICE REGULATION IN AUSTRALIA? A price cap on fuel would be dangerous for motorists, the industry and the economy. T asmania is introducing fuel price reporting laws as a means of lowering fuel prices. In May, Premier Peter Gutwein said that if this measure didn’t deliver lower fuel prices, then his government would introduce a new law that sets a ‘price cap’ on retail fuel prices across the state. The development appears to be part of a theme being advanced by the Premier and Chief Ministers in the three smallest capital city markets (Canberra, Darwin and Hobart), all of whom have rattled the sabre of regulation recently, believing that fuel prices should be lower than the current average retail price experienced in their state or territory. But in evidence to a recent inquiry conducted by the Northern Territory government, ACAPMA drew attention to the fact that most commentators, particularly motoring bodies, were drawing false conclusions about the relative retail margins of service station operators. These errors were being made because these commentators appeared to believe that the current day average terminal gate price in these markets (ie, the wholesale price paid by service stations for fuel) was well below the retail price (ie, that charged by service stations to consumers). Yet, as we all know, many retailers buy fuel based on contract prices – not instantaneous wholesale prices – and that is particularly the case in markets such as Canberra, Darwin and Hobart. This majority wholesale fuel purchase behaviour together with rapidly declining prices (which means that a price paid four weeks earlier was likely to be much higher than today’s), dramatic reductions in fuel volumes due to the COVID-19 economic shutdown (which means previously bought stock takes longer to cycle through to end customers) and the absence of a discount price fuel cycle (as exists in the larger capital city markets) provide all the explanation needed for the anomalies observed in these three markets. It’s beyond belief that, in the same breath as talking about the fact that we’re living in ‘unprecedented times’, somehow the Premier and Chief Ministers in these small markets believe they should have seen ‘normal’ fuel market behaviour during the COVID-19 downturn. That said, the right to introduce price regulation in retail fuel markets is ultimately the prerogative of all Australian governments. In addition, there are significant complexities associated with the introduction of such measures, not the least of which is the navigation of the significant indirect taxes levied by the federal government (ie, fuel excise collection), with any state/territory price cap running the risk of a state/ territory government introducing laws that negatively impact on federal government revenues. But does fuel price regulation work? The model that all three governments (ie, ACT, Northern Territory and Tasmania) have foreshadowed is a price cap. Notionally, this means setting a fixed price cap (eg, 20 cents) above a wholesale benchmark. But which benchmark should be used? TO PAGE 56 Source: Australian Petroleum Statistics (https://www.energy.gov.au/ publications/australian-petroleum-statistics-2020) 54 CONVENIENCE WORLD JUL/AUG, 2020