INQUIRY INTO FUEL PRICES IN THE NORTHERN TERRITORY

Transcription

1 INQUIRY INTO FUEL PRICES IN THE NORTHERN TERRITORY AUTOMOBILE ASSOCIATION OF THE NORTHERN TERRITORY (AANT) SUBMISSION 1 March This submission was prepared with assistance of the Australian Automobile Association (AAA).

2 EXECUTIVE SUMMARY AANT has long held concerns that motorists in the Northern Territory have been forced to pay too much for fuel, and is pleased to present this submission to the Inquiry into Fuel Prices. The key points of this submission are: Fuel prices in the Territory are well above the national average. In January 2005, the unleaded petrol price in Darwin was 11.7 cents per litre (cpl) higher than the average of the other capital cities (107.3 and 95.6 cpl respectively). Taxation, in the form of an excise of cents per litre (cpl) and GST (of 10 per cent), makes up a large component of fuel prices. Surveys conducted by the AAA show that motorists believe that more of fuel taxes should be spent on improving roads. It is estimated that each Darwin motorist has incured an additional $120 per year in fuel expenses, compared to the average of the other capital cities. There is evidence to suggest there is a lack of competition in petrol retailing and wholesaling in the Territory and, as a result, retailers and wholesalers in the NT had some of the highest profit margins in the country. 2 The AANT believes that: the Inquiry should examine the extent of barriers to entry in the Northern Territory retail market and access to sites, compared to other states; the Inquiry should explore options for ensuring that independent retailers have access to competitive wholesale prices; improving the availability of pricing information, including that advertised terminal gate prices accurately reflect actual prices, and educating motorists about petrol pricing should be a priority; the effectiveness of the Northern Territory 1.1 cpl subsidy should be examined to ensure that it is being passed onto motorists; the Inquiry should investigate the reasons why competition between supermarket owned service stations, particurly in Darwin, has not been as fierce as in other locations nationally; and the introduction of price setting regulation, such as the Western Australian system which allows prices to change only once every 24 hours, would be harmful to competition, and therefore should not be pursued. 2 Dyer, P. (2005), The Great Fuel Rip Off, Northern Territory News, 6 January

3 1 INTRODUCTION 1.1 AANT PERSPECTIVE The AANT represents the interests some 14,000 motorists in the Northern Territory and has long held concerns that motorists have been forced to pay too much for fuel. In this regard the AANT is pleased to present this submission to the Inquiry into Fuel Prices. AANT is a constituent member of the Australian Automobile Association (AAA) which is the Federal secretariat of the State and Territory motoring organisations. AAA has played a leading in role in advocating on fuel issues on behalf of motorists. AAA played a significant role in 2001 in ensuring that the fuel excise rate was adjusted downwards to account for the introduction of GST, and that fuel excise indexation was abolished. Fuel prices reflect a complex range of factors including crude oil prices, production, distribution and marketing costs, State and Federal Government taxes and subsidies, exchange rates and market forces of supply and demand. The complexity of fuel pricing is reflected in comments recently made by oil companies and fuel retailers. In the Daily Telegraph on 25 February 2005, Helen Morgner of Shell said Let s be clear it is the retailers who set the price of petrol at the pump. In the same article, James McCall of the NSW Motor Trades Association said The oil companies have complete control over petrol pricing in this country. 3 In the Northern Territory News on Thursday 6 January 2005, FUELtrac General Manager Geoff Trotter argued that it is both the wholesalers and retailers that determine fuel prices. He said retailers and wholesalers in the NT had some of the highest profit margins in the country and that they shared in about 25 cents per litre, with up to 13 cents per litre going to the retailer. Mr Trotter also said that In southern states, the margin is closer to 10 cents per litre with as little as 3 cents going to the retailer TERMS OF REFERENCE The Inquiry is to: consider and report on the prices paid for fuel by Territory motorists with reference to the prices paid in comparable locations elsewhere in Australia; examine reasons for the high fuel prices paid by Territory motorists, including reasons given by the fuel companies and others; provide a comparison of the wholesale and retail margins and input costs such as transport in the Northern Territory and other locations; examine the effectiveness of competition in the Northern Territory amongst the major fuel companies, wholesalers and retailers; 3 Morger, H. and McCall, J. (2004), The Debate, The Daily Telegraph, 25 February Dyer, P. (2005), The Great Fuel Rip Off, Northern Territory News, 6 January

4 examine the impact of fuel discounters in the Northern Territory market compared to elsewhere in Australia; and report on what could bring about a reduction in the fuel prices paid by Territory motorists. AANT s submission will discuss issues related to these Terms of Reference, drawing on data compiled by AANT and the AAA, and will make specific recommendations to the Inquiry

5 2 BACKGROUND 2.1 FUEL PRICES IN THE NORTHERN TERRITORY As can be seen from Figure 1 (below), during the three years to January 2005, the price of unleaded petrol in Darwin, Alice Springs, Katherine and Tennant Creek moved up and down in line with the price movements of unleaded petol in all other capital cities ( other capitals average ) and towns in regional Australia ( other regionals average ). 5 However, the actual prices in the Territory remained substantially higher than the prices in capital cities and regional towns. In January 2005, the Darwin price (107.3 cpl) was 11.7 cents per litre higher than the other capitals average ( 95.6 cpl). In the same month, the average price for Alice Springs, Katherine and Tennant Creek (112.1 cpl) was 12.7 cpl higher than the other regionals average (99.4 cpl). A similar situation exists for diesel prices, though the margin between Territory prices and the other averages has tended to be smaller than that of unleaded petrol prices. In January 2005, the Darwin diesel price was 7.8 cpl higher than the other capitals average (113.5 and cpl respectively). 120 Figure 1: Monthly average unleaded petrol price, selected areas 110 cents per litre Darwin Alice Springs Katherine Tennant Creek Other capitals average Other regionals average 60 Feb-02 Apr-02 Jun-02 Aug-02 Oct-02 Dec-02 Feb-03 Apr-03 Jun-03 Aug-03 Oct-03 Dec-03 Feb-04 Apr-04 Jun-04 Aug-04 Oct-04 Dec-04 Source: Adapted from FUELtrac data. High prices translate directly into a relatively high financial burdern for motorists. During the past twelve months, the unleaded petrol price in Darwin has been, on average, 7.3 cpl higher than the average of the other capital cities. 6 Since the average motorist travels 14,600 km per year, and the average passenger vehicle has a fuel consumption rate of 11.4 L/100km, it can be estimated that each Territory motorist has incured an additional $120 per year in fuel expenses, compared to the average of 5 Other capitals average is the monthly average price of all capital cities other than Darwin. Other regionals average is the monthly average price of regional locations FUELtrac supplies to AAA, all of which are outside of the Northern Territory and capital cities. 6 FUELtrac data

6 the other capital cities. 7 This financial burden for motorists comes at a time when oil companies are enjoying record profits. Caltex for example, last year announced a record profit of $572.3 million more than double the previous years result. 8 AANT also notes that a substantial proportion of the price of fuel is a result of taxation. The Federal Government currently collects cpl excise plus 10 per cent GST (which is passed onto the States and Territories) on petrol and diesel. Thus, total taxation represents around 48 cpl. Major surveys conducted by the AAA show that motorists believe more of fuel taxes should be spent on improving roads TERMINAL GATE PRICES The terminal gate price (TGP) is the wholesale price for bulk purchases from a fuel terminal. 10 Major fuel companies regularly publish TGPs for capital cities on their websites. Table 1 below lists Shell and Caltex TGPs for capital cities, the weekly average Shell and Caltex unleaded petrol price and the difference between the respective TGPs and prices. As can be seen, both the Shell and Caltex TGPs for Darwin are higher than those of all other capitals. The Shell TGP in Darwin is 2.13 cents per litre higher than Perth, 3.11 cents per litre higher than Adelaide and 3.18 cents per litre higher than Brisbane. The Caltex TGP in Darwin is 2.65 cents per litre higher than Perth, 1.51 cents per litre higher than Adelaide and 3.63 cents per litre higher than Brisbane. Table 1: Capital city weekly average Shell and Caltex unleaded petrol prices and TGP Capital city Shell (cpl) Caltex/Ampol (cpl) ULP TGP ULP TGP (week from 25 Feb 05) (25-28 Feb 05) Difference (week from 25 Feb 05) (from 24 Feb 05) Difference Brisbane Sydney Canberra Melbourne* Hobart Adelaide Perth* Darwin * TGPs State regulated Sources: Australian Bureau of Statistics (2004), Survey of Motor Vehicle Use, Cat No Owen, R. (2005), Caltex Plans $300 Million Fitout For Refineries, The Daily Telegraph, 28 February ANOP Research Services (2003), Motorists Attitudes and Priorities, Report for the Australian Automobile Association. 10 TGPs are generally based on Singapore benchmark prices, transport costs, insurance, volume of purchase and competition. In Victoria and Western Australia, TGPs are also subject to subject to State regulation

7 Apart from the fact that TGPs in Darwin are relatively high, the data in Table 1 suggests that the margin between the TGPs and retail prices is relatively high (shown in the columns labelled difference ). This is known as the retail margin, and typically accounts for transport costs, administration and marketing costs, costs of operation of the service station including wages, rent and utilities, and profit. Thus, Darwin has the highest TGPs, and a relatively high retail margin, compared to the other capital cities. It is noted that there are two important caveats to this point. The first is that the petrol prices listed might not directly relate to the listed TGPs, even though they apply to the same periods. This is because of the potential lag between when wholesale fuel is purchased, and when it is sold. The second caveat is that there may be a portion of the market not covered by TGP spot price arrangements, both because retailers generally prefer to obtain fuel on a contract basis 11, and for other reasons (as is discussed later in the submission). Thus, the TGP prices published by oil companies are only indicative of actual wholesale prices. Nevertheless, with the limited data available at time of writing, the analysis in Table 1 does provide an indication of the relative pricing in the capitals. 2.3 WHOLESALE PRICES FUELTrac s Import Parity Indicator Price (IPIP) index also offers a guide to wholesale prices. The IPIP is equivalent to the former Australian Consumer and Competition Commission (ACCC) maximum endorsed wholesale price. It is based on Singapore prices and includes product costs, shipping, insurance, port and termial charges and margins what it costs the oil companies to get the fuel into Australian terminals. The AAA receives FUELtrac s IPIP series on a monthly basis. As the IPIP provides an indication of the costs associated with importing fuel to Australia, it therefore provides an indication of the wholesale price at which this imported fuel could be sold. Additionally, because the Australian fuel market is open to international competition, domestic wholesale prices are set with the price of this imported fuel in mind. Table 2 below lists average unleaded petrol prices in capital cities for January 2005, the IPIP index for the same period, and the difference between the two. The table shows that the IPIP index in Darwin is only slightly higher than that of the other capitals (with Brisbane being the exception, which has a State Government subsidy of 8.35 cents per litre). The Darwin IPIP of cents per litre is 0.16 cents per litre higher than Sydney, 0.79 cents per litre higher than Perth, and 1.33 cents per litre higher than Adelaide. Given that retail prices in Darwin are high relative to other States, the fact the IPIP index is not substantially higher than other capitals translates into a higher margin between the IPIP index and retail prices. In fact, the difference in Darwin is 9.11 cents per litre. With the exception of Hobart, this difference is substantially higher than the other capitals, indicating a higher retail and wholesale margin. 11 Australian Consumer and Competition Commission (2002), Terminal Gate Pricing Arrangements in Australia and Other Fuel Pricing Arrangements in Western Australia

8 Table 2: Capital city average unleaded petrol prices and IPIP, January 2005 Capital city Unleaded petrol price IPIP index (cpl) Difference (cpl) Brisbane Sydney Canberra Melbourne Hobart Adelaide Perth Darwin Source: Adapted from FUELtrac data. A similar situation exists for diesel, with the Darwin price in January 2005 being 11.1 cents per litre higher than the diesel IPIP in January With the exception of Hobart, this was substantially higher than all other capital cities. For example, the difference in Melbourne was only 1.01 cents per litre

9 3 LACK OF COMPETITION AANT Submission to the Fuel Price Inquiry There are clear indications that there is a low level of competition in the Territory. Vibrant competition is an important factor in driving down prices in any market place. A lack of competition is often associated with high prices. 3.1 MOTORISTS ARE SENSITIVE TO FUEL PRICES, BUT THEY DON T (OR CAN T) SHOP AROUND According to results of a major survey conducted by AAA, motorists in the Territory are sensitive to fuel prices 12. In 2003, nearly three quarters (72 per cent) of Territory motorists had a fairly good idea of what petrol prices were, and a quarter (25 per cent) knew exactly what petrol prices were. More than half (53 per cent) of all Territory motorists had used shopper dockets to obtain discounted petrol. Despite this though, only 11 per cent of motorists tried to buy fuel when cheapest compared to 48 per cent in Western Australia, 50 per cent in South Australia, and 51 per cent in Queensland. Given that motorists are sensitive to fuel prices, this disporportionatly low rate of trying to buy when cheapest suggests that options to shop around for fuel prices are limited in the Territory. That is, fuel prices tend not to vary between retailers in the Territory compared with other States, indicating a lack of competition. This is confirmed by data collected from the Shell website for the period 2 February to 2 March 2005 which shows that average unleaded petrol prices in Darwin were largely steady at a 106 cents per litre. Figure 2: Average daily Shell unleaded petrol prices in Darwin, February-March, 2005 Source: 12 ANOP Research Services (2003), Motorists Attitudes and Priorities, Report for the Australian Automobile Association

10 3.2 THERE IS NO DISCOUNTING CYCLE IN DARWIN By contrast to the lack of price movement in Darwin over a period of one month, there is a very clear discounting cycle, usually operating on a weekly basis, in most capital cities. According to FuelWatch for example, the high and low prices of the weekly cycle in Perth can vary by as much as 13 cents per litre. 13 The discounting cycle is a result of market place competition. In response to concerns about petrol price variability (as opposed to price levels), the ACCC conducted an inquiry in The ACCC noted that while some motorists might be frustrated by the weekly price cycles, others benefit by purchasing fuel at the low point of the cycles. The ACCC found that in aggregate, motorists benefit from the price cycles. The ACCC monitors prices and publishs cycles on the web. 15 As an example, a weekly cycle can be discerned in Brisbane with prices varying by 6 cpl from the peak to the trough. Figure 3 below illustrates the weekly discounting cycle in Brisbane. Figure 3: Average daily retail prices in Brisbane, unleaded petrol, January February, 2005 Source: The lack of a discounting cycle in Darwin makes it more akin to a country town in most other states, where prices do not tend to vary on a weekly cycle. This is an indication that there is relatively little competion in the market place Australian Consumer and Competition Commission (2001), Reducing Fuel Price Variability, December

11 4 FACTORS AFFECTING RELATIVE PRICES There are a number of factors that could influence the level of competition in the Territory and relative fuel prices nationally, which should be considered by the Inquiry. 4.1 MARKET STRUCTURE There appears to be little public information on the exact market structure of the fuel wholesale and retail markets in Darwin or the Territory generally. The most recent data on the number and type of service stations in the Territory appears to be the Australian Institute of Petroleum s (AIP) national survey, conducted in Given that the market has changed somewhat since that time (the most notable change being the establishment of the supermarket stations and United Petroleum stations), it is difficult to now draw conclusions from the survey. This is in contrast to Western Australia for example, which has information on operating structure and retail market shares available on the FuelWatch website. 17 In the interests of enabling consumers and retailers to make informed assessments of the market, AANT considers that the Inquiry should examine alternatives for making this type information publicly available. There are some common arguments made to justify high prices. One is that because of the Territory s small population, low volumes of fuel sales require higher prices in order to break even. Thus the kind of discounting observed in capitals other than Darwin might not be sustainable in the medium to long term in smaller Territory markets. However, there is certainly evidence that substantial discounting can occur in small markets, at least in the short. Katherine is a good example. Recently in Katherine, in the 24 hours following the opening of the independent United Petroleum service station, prices in the town dropped by around 10 cpl. 18 The sudden drop in prices left locals wondering why they had been paying so much for fuel in the past, and demonstrated that there is capacity for lower prices in even relatively low volume markets. The long term sustainability of these prices might be questioned, but the fact that the discounted prices in Katherine are more in line with regional areas in other States suggests that it could in fact be sustained. Another common argument justifying high prices in the Territory relates to transport costs. According to FUELtrac however, in terms of distribution between fuel terminals and retailers, this is not a factor in the capital cities (the exception being Canberra). Hence, transport costs do not explain the large difference between prices in Darwin and in other capitals. Furthermore, FUELtrac General Manager Geoff Trotter dismisses the argument that Darwin s isolation explains high prices. He does so on the basis that Darwin is the closest city to Singapore the largest refining and supply location in the Asia-Pacific, and therefore is quite accessible in terms of the world market Kerin, L. (2004), Fuel Inquiry Stateline, ABC, 11 February Whittaker, J. (2005), Fuel Facts and Fiction, Australian Transport News, January

12 In regional areas however, transport costs do influence relative prices. In New South Wales for example, of the 37 sites for which FUELtrac data is supplied to the AAA, the highest transport cost is 3.8 cents per litre (Port Macquarie and Moree). This compares to 4.5 cents per litre in Alice Springs and 6.4 cents per litre in Tennant Creek. Hence, transport costs are likely to be a factor in explaining the higher prices in the Northern Territory, though they do not appear to fully account for the differences. 4.2 SHOPPER DOCKETS The entry of major supermarket chains into petrol retailing has been perhaps the most significant change in the industry during the past decade. Currently Coles, Woolworths and the independent franchise supermarket chain, IGA all have discount schemes in place in the Territory. 20 Surveys conducted by the AAA indicate that the use of supermarket dockets has dramatically increased. 21 In the past five years, the usage rate has moved from one in four to nearly three in four motorists. Amongst the three in four, a majority are using the dockets most of the time they buy petrol. The ACCC recently undertook a review of shopper docket discount schemes nationally. While the ACCC acknowledged that the discount schemes might be a factor in reducing the number of independent operators in the industry, it found that the introduction of the shopper docket schemes has encouraged competition and lower prices in the fuel market. 22 To the extent that ACCC has reported that shopper dockets improve competition in the petrol retail industry, AANT supports the discount schemes. Given that the shopper docket discount schemes are now in operation throughout Australia, it does not seem that they are a major factor in explaining the relatively high prices in the Territory. It is noted however, that concerns have been raised with AAA that the level of competition between supermarket owned service stations, particurly in Darwin, has not been as fierce as in other locations nationally. A detailed examination of this aspect is beyond AANT s resources, and AANT therefore considers that the Inquiry should investigate this issue. 4.3 BARRIERS TO ENTRY Concerns about barriers to entry into the fuel retailing market have long been held by some industry analysts and consumer advocates. Concerns typically relate to issues such as difficulties in land development planning for retail sites, establishment costs and the dominance of the supply chain by oil companies. It is recognised that some of these barriers are currently enshrined in the Federal Sites and Franchise Acts and the AAA has long been an advocate of fuel industry reform including the repeal of this legislation and its replacement with an industry wide Oilcode. 20 Roarty, M. and Barber, S. (2004), Petrol Prices in Australia: Issues and Trends, Current Issues Brief No , Australian Parliamentary Library. 21 ANOP Research Services (2005), Motorists Attitudes and Priorities, Report for the Australian Automobile Association. 22 ACCC (2004), Shopper docket petrol discounts to continue, Release No MR 009/04, 6 February

13 In relation to the fuel supply, Geoff Trotter of FUELtrac argues that the oil companies in the Northern Territory are restricting competition by control of service stations and distributors, saying A lot of service stations in the Territory are owned/leased or signed on supply agreements by these distributors and most of these distributors these days are either owned or a majority interest is held by the oil companies. 23 Anecdotal reports to the AAA suggest that the effect of this dominance of the supply chain is resulting in independent service station operators being charged extraordinarily high wholesale prices, which often bear little resemblance to advertised terminal gate prices. In one reported instance, an operator was apparently regularly charged about 12 cpl above the oil company s advertised TGP price, which seems extraordinary even taking into account transport costs and any permium for low volume purchases. This issue has also been raised as a concern by the Motor Trades Association of Australia (MTAA). 24 The MTAA has said Many independent operators are concerned that their wholesale buying prices are above the retail prices being posted by some larger competitors. According to the MTAA, this issue potentially threatens the long term viability of independent retailers, who play an important role in ensuring that there is competition in the market. According to reports to the AAA, independent operators are often charged a premium on wholesale prices for smaller but more frequent purchases. Retailers are required to make purchases in this way if they have relatively small on-site storage capacity, which is common to independents. The potential to avoid these premiums by increasing storage space is limited because it is prohibitively expensive, and therefore represents a potential barrier to entry or an inability to gain an equal footing in the market. AANT considers that independent retailers play an important role in ensuring a competitive market. While we acknowledge that competitive forces might put increased pressure on the independents in the future namely through the establishment of supermarket chain retailers the Inquiry should seek to ensure that additional pressure is not placed on independents through anti-competitive forces. AANT strongly recommends that the Inquiry examine the extent of barriers to entry in the Northern Territory retail market, and in particular, explores options for ensuring that independent retailers have access to competitive wholesale prices. 4.4 SUBSIDY RATES Fuel prices are influenced by State and Federal subsidies. As can be seen in Table 3 for example, prices in five capital cities, including Darwin, are subject to State Government subsidies. The most significant of these subsidies is the Queensland Government subsidy of 8.35 cents per litre. The other subsidies vary between 0.43 cents per litre for petrol in Melbourne to 1.99 cents per litre for diesel in Hobart. In Darwin, fuel is subsidised by the Northern Territory Government at a rate of 1.1 cents per litre. This scheme has been in place since 5 July 2000 for unleaded petrol and 17 July 2000 for diesel, and is 23 Whittaker, J. (2005), Fuel Facts and Fiction, Australian Transport News, January Motor Trades Association of Australia (2004), Annual Report

14 designed to counteract the abolition of State franchise fees on fuel (as a result of a 1997 High Court ruling) and the subsequent collection and distribution of fees at a flat rate by Federal Government. 25 Table 3: Fuel subsidy rates in capital cities. Location and fuel type Subsidy (cents per litre) Brisbane (LP,ULP,Prem Dies) 8.35 Melbourne (LP,ULP,Prem) 0.43 Melbourne (Diesel) 0.75 Perth (Diesel) 0.67 Hobart (LP,ULP,Prem) 1.95 Hobart (Dies) 1.99 Darwin (LP,ULP,Prem,Dies) 1.10 Source: FUELtrac. The subsidies listed in Table 3 typically also apply to regional areas. There are also other State subsidies in existence for regional areas. One such example is the New South Wales Petroleum Products Subsidy Scheme Northern New South Wales. 26 Under the scheme, the State Government pays a subsidy for fuel sold in five northern zones extending south from the Queensland border. The scheme is designed to ensure that retailers in New South Wales are able to compete with Queensland retailers, who obtain an 8.35 cpl subsidy from the Queensland Government. The Subsidies apply to both petrol and diesel and rates vary from 8.35 cpl in zone 1 (Queensland border) to 1.67 cpl in zone 5 (Armidale). 27 The Federal Government also subsidises fuel under the Fuel Sales Grant Scheme (FSGS). Under this scheme, subsidies of one, two and three cpl are applied to regional, rural and remote locations. The FSGS was designed to address the disparity between metropolitan and non metropolitan prices. Under the FSGS, Darwin and Hobart are classified as a regional areas, and therefore allowed a one cpl subsidy. In principle, the FSGS lowers the Darwin unleaded petrol price by one cent per litre relative to most other capital cities. 28 However, on 22 January 2004, Deputy Prime Minister, John Anderson, announced the abolition of the FSGS. The scheme is to be phased out from 1 July 2006 because there was difficulty in ensuring the benefits were passed on to regional consumers 29 This problem is typical of subsidies ensuring that funds are passed onto consumers is a notoriously difficult task. AANT considers that a review of the Territory subsidy scheme should be conducted to ensure that the subsidy is being passed onto motorists. 25 Northern Territory Treasury (2004), Fuel Subsidies. General Fuel Subsidies from July 2000, Revenue Circular FS 002, November 2004; discussions with officers of Northern Territory Treasury. 26 New South Wales Office of State Revenue (2003), Petroleum Products Subsidy Scheme Northern New South Wales, Factsheet, October It is noted the South Australia employs a fuel subsidy scheme which is based on distance from the Adelaide GPO. The subsidy varies from 0.82 cpl to 3.33 cpl Anderson, J. and Campbell, I. (2004), Major Downpayment on Australia s Transport Future, Joint Media Release, 22 January

15 4.6 TRANSPARENT INFORMATION The availability of transparent fuel and fuel price information plays an important role in improving competition. This issue was raised earlier in the market structure section. The view of AANT is that educating motorists about petrol pricing should be a priority. There is currently a range of information on petrol pricing, including actual prices and background information, freely available to motorists. Websites such as and are good examples. This type of information assists motorists in understanding issues relating to petrol pricing. However, given the significant problem in the Territory, an increased effort to assist motorists is warranted. In this respect, the development of an information awareness program along the lines of Western Australia s FuelWatch program could be beneficial. The Northern Territory Government could play a role in providing relevant price information. It is noted that the ACCC found that the introduction of the FuelWatch website in Western Australia improved price transparency for consumers and industry, and therefore is positive in terms of improving competition Australian Consumer and Competition Commission (2002), Terminal Gate Pricing Arrangements in Australia and Other Fuel Pricing Arrangements in Western Australia

16 4 RECOMMENDATIONS AANT Submission to the Fuel Price Inquiry The primary argument of AANT is that the Inquiry should recommend steps that foster competition and improve transparency of information. AANT believes that retailers should have the opportunity to compete on a level playing field. Independent retailers play an important role in maintaing competition, and should not be squeezed out of the market by anti-competitve forces. In this regard AANT strongly recommends that the Inquiry examine the extent of barriers to entry in the Northern Territory retail market, and in particular, explores options for ensuring that independent retailers have access to competitive wholesale prices. In arguing for the need for improved competition, AANT notes that it will generally not support the introduction of regulations that control price setting. For example, AANT would not support the introduction of a system similar to that of Western Australia, which allows prices to change only once every 24 hours. This position is based on a recent report by the ACCC which warned that it is hard to conclude that the Western Australian fuel pricing arrangements have been successful to date. In particular, the ACCC noted that: the 24-hour rule is likely to have reduced rather than increased competition. This is because it adversely affects independent operators who tend to use prices as their main tool for achieving competitive advantage. Under the 24-hour rule, the ability of independents to respond quickly to competitors has been diminished. 31 The result of this decrease in competition was found to be an increase in prices in Perth compared to other capital cities. AANT is also of the belief that educating motorists about petrol pricing should be a priority. There is currently a range of information on petrol pricing, including actual prices and background information, freely available to motorists. Websites such as and are good examples. This type of information assists motorists in understanding issues relating to petrol pricing. However, given the significant problem in the Territory, an increased effort to assist motorists is warranted. A key aspect of this should be the requirement that published terminal gate prices better reflect the price at which the majority of fuel sales will be made. This information should also include details on the structure of the Northern Territory wholesale and retail markets, which will provide consumers with a better understanding of pricing in terms of supply and demand. In this respect, the development of an information awareness program along the lines of Western Australia s FuelWatch program could be beneficial. It is noted that the ACCC review referred to earlier found that the introduction of the FuelWatch website in Western Australia has improved price transparency for consumers and industry, and therefore is positive in terms of competition. 31 Australian Consumer and Competition Commission (2002), Terminal Gate Pricing Arrangements in Australia and Other Fuel Pricing Arrangements in Western Australia

17 Concerns have been raised with AAA that the level of competition between supermarket owned service stations, particurly in Darwin, has not been as fierce as in other locations nationally. AANT considers that the Inquiry should investigate this issue. Finally, fuel in the Northern Territory is subject to a 1.10 cpl State Government subsidy. In light of the decision of the Federal Government last year to phase out the Fuel Sales Grant Scheme (FSGS), because it believes it to be ineffective, the AANT believes that the Inquiry should investigate whether the Territory subsidy is being passed onto motorists