Some items on our site have recently moved. Visit our News Hub for selected articles, special reports, podcasts and other resources.
New Zealand fuel market probe likely to prompt new questions on old issues
21 January 2019 00:00 by Laurel Henning
It’s no surprise that retail fuel prices are among the top issues on the New Zealand competition regulator's investigative agenda following the new powers it gained last year. The price of gasoline and unexplained regional differences have generated much public debate and politicians have been clamoring for action.
But the government’s decision to make the industry the first to face the Commerce Commission's scrutiny raises questions — mainly because the acquisition of fuel retailer Chevron New Zealand by rival Z Energy had already prompted the regulator to investigate the entire industry; it published its findings in 2016.
That has led observers to ask what the Commerce Commission is likely to find out about fuel retail that it doesn't already know.
The likely answer is not very much. The review of the NZ$785 million ($530 million today) Z Energy-Chevron deal involved serious scrutiny of the market, with the commission asking questions about how removing a market player would affect competition.
After a 10-month investigation, the regulator decided in April 2016 that the merger wouldn’t substantially reduce competition in the national market —including the provision of fuel to retail customers through service stations — and it waved the deal through. A review of that decision points to the regulator's clear understanding of the competition challenges facing the market.
Barring a rapid and unexplained evolution of the market since then, the basis of that industry review is likely to remain relevant today. Observers believe that established understanding of fuel retail in New Zealand could underpin this year's inquiry.
In its review of the merger, the Commerce Commission concluded that there were two ways in which competition could be reduced.
First, a merged entity could allow Z Energy to profitably increase the prices it charged to customers in areas where both companies were present. Second, the deal could prompt the remaining three major fuel companies — Z Energy, BP and Mobil — to exercise market power collectively to raise or maintain prices above competitive levels.
To allay those fears, Z Energy agreed to divest 19 of its service stations.
That remedy was enough for the regulator to give the deal the green light — despite a dissenting opinion expressed by Jill Walker of the Australian Competition & Consumer Commission, who was sitting on the panel as part of the two regulators' system of cross-appointments.
Walker said she wasn't satisfied that the merger wouldn't lead to the companies left in the market to coordinate pricing — the double-negative favored by regulators expressing concerns about competition.
Those concerns weren't shared by Walker's New Zealand colleagues, and the deal proceeded.
The investigation provided the backdrop to a report published in 2017 by New Zealand’s Ministry of Business, Innovation and Employment, which probed the financial performance of the fuel market.
The ministry acknowledged the competition authority’s clearance of the Z Energy-Chevron deal, but recommended further examination of the industry. That led eventually to the announcement that the retail fuel industry would be the subject of a first probe under the Commerce Commission's newly acquired market studies powers.
More to see
The recent industry probes have left observers wondering what could be left to study. Either there is a lack of competition in the market, they say, or there isn’t. If there is, it should already have been uncovered.
But other observers say there is, indeed, more to examine. They say the questions asked by the Commerce Commission’s initial probe of the Z Energy-Chevron deal examined only market competition. The market study will look at the workings of the sector and ask whether it functions properly; it will be a different report, with different questions to answer, they say.
That is prompting New Zealand's fuel retailers to lawyer up and prepare themselves to make submissions to the new inquiry. Whether or not there are competition concerns that have yet to be explored, the number of studies targeting the industry suggests that retailers ought to be on guard.
Yet fuel retailers may also draw some comfort from knowing that industry probes to date have failed to find hard evidence of anticompetitive behavior among their ranks, pointing instead merely to market weaknesses.
The regulator will need to approach its recently granted market study powers from a new perspective if it is to advance the country's retail fuel debate.
FTC approves only the most experienced, well-financed divestiture buyers to ensure that competition lost from a merger will be replaced or even enhanced.
22 November 2021 00:00 by Claude MarxFTC Chair Lina Khan’s bold attempts to reshape the agency’s enforcement priorities could cause pushback from her adversaries on Capitol Hill.