Why Australian motorists are still under the pump
With petrol prices on the rise again and a federal election fast approaching, the Federal Government is scrambling to get some runs on the board. After the Fuelwatch debacle and with the first ACCC Petrol Commissioner having resigned very quickly, the Government’s tough talk on petrol prices has remained just talk.
So why does the Federal Government continue to fumble the ball so badly on petrol prices? Well, quite simply because of their continued failure to tackle the underlining problems. These problems are far reaching and together they ensure that the oil companies and Coles and Woolworths maintain and extend their stranglehold of over the petrol industry.
In fact, the Federal Government’s repeated failure to tackle the dominance of the oil companies and Coles and Woolworths lies at heart of their failure to deliver on their election promise to put downward pressure on petrol prices. Like their promise to do the same for grocery prices, the petrol promise has delivered nothing for motorists.
So what are the problems that need to be addressed? First, we need to cut our dependence on petrol. Motorists are gouged all along the distribution chain and the sooner we promote the use of alternatives the sooner we can break the power of OPEC and the oil companies. There is no doubt that the dominance of OPEC and oil companies globally means that oil prices and supply are manipulated from the very start of the distribution chain.
Let’s also not forget the power of speculators to artificially push up world oil prices. As the global economy improves, more and more speculators are coming back into energy trading markets. This generates additional trading activity, which in turn, pushes up world oil prices even more.
Speculators are increasingly being blamed for the record highs in world oil prices we have had in recent years. Not surprisingly speculators are now coming under closer scrutiny by regulators in the US. This increased scrutiny is now leading to growing calls to regulate the activities of speculators in energy trading markets. Australia could certainly contribute to this debate internationally particularly given that world oil prices significantly impact on local prices.
In Australia we have the added concern that local prices are based on the price of refined petrol traded in Singapore. As Australia imports more and more refined petrol, it is considered appropriate to base local prices on refined prices in the international petrol trading hub nearest Australia. That happens to be Singapore and as a result Australian motorists are at the mercy of any games played by the oil companies and traders with the refined price of petrol traded out of Singapore.
What’s troubling about the use of the Singapore traded price for refined petrol is that our competition regulator, the ACCC, has no power to determine if the Singapore refined price is ever manipulated. Very little information is publicly available about the Singapore traded prices and, consequently, there will from time to time be question marks over the integrity of those prices. Dangerously for Australian motorists even if we could get evidence that the Singapore price is being manipulated, the ACCC has no power to prosecute offenders in Singapore.
To overcome the limitations of using a Singapore price as the starting point for local prices we need to use either a basket of international traded refined prices (which would be much harder to manipulate), or a locally based benchmark where the ACCC could investigate and prosecute attempts to manipulate the benchmark.
So with the world oil price and the Singapore refined price both capable of being manipulated, Australian motorists are right to suspect a price gouge. Add to this the possibility that wholesale prices in Australia can be inflated by the oil company club that controls the wholesale market and motorists are right to be upset that the Federal Government has done nothing to break the oil company dominance at the wholesale level.
The Federal Government could act to stop the cosy arrangements that the oil companies operate in the wholesale market. These are called “buy/sell” arrangements and mean that the oil companies only buy and sell from one another in the Australian wholesale market. While the ACCC has raised serious competition concerns about these arrangements over two years ago, the ACCC and the Federal Government have not moved to break up the arrangements.
Competition at the wholesale level is also stifled by oil company control of terminal and storage facilities. Unless independents have access to sufficient terminal and storage facilities, they cannot import sufficient quantities of petrol into Australia.
It goes without saying that a reduction in the supply or availability of petrol will lead to higher prices. So, if the oil companies can reduce the amount of terminal and storage facilities available to independent competitors, the oil companies can reduce the supply of petrol by those competitors. Similarly, if the oil companies can reduce the number of service stations, then they can also reduce the number of competitors selling petrol. Clearly, the oil companies have a huge incentive to lock up or remove terminal or storage facilities, as well as shutting down service stations, something they have been doing rapidly over the years.
With so many fundamental problems that the Federal Government needs to address it’s disappointing that it’s again fiddling around the edges with talk of trying to tackle the practice where the oil companies and Coles and Woolworths simply copy one another on price. Again this is just talk as the ACCC recommended changes to the law on this issue over 2 years ago, but Federal Government has simply sat on those recommendations. Now there is a “secret report” about the matter and the Federal Competition Minister, Craig Emerson, says he is very “serious” about tackling the issue.
Well, Minister, how about showing us the “secret report” immediately and giving us real action to get prices down for motorists rather than just talking about it.
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