Time to Stop Bashing Petrol Companies

It is time that pollies and the regulators stopped playing politics with petrol.

Their frequent claims of price gouging by the petrol companies are false.  Moreover they are undermining public trust in markets and the regulatory system.

The petroleum industry is one of the most intensely investigated industries in this country.  Over the last twenty years there has been by forty-two formal inquiries into the industry with a new one currently underway.  Moreover every aspect of the industry from pricing to ownership, to location is monitored on a on-going basis by states and federal governments,

Governments and the regulators know from the accumulated mountain of evidence that the petrol industry is hellishly competitive and produces some of the lowest priced petrol in the world.  But they choose to turn a blind eye.

Two years ago when world oil price were rising rapidly, the major petrol companies were roundly accused of excessive price increases.  Australian Competition and Consumer Commission (ACCC) eventually took a look at the evidence and found that instead of over-recovering the petrol companies were under-recovering.  That is, between January 1999 and August 1999 "actual unleaded prices were below the retail import price indicator by 1.65 cents per litre (cpl) for the five major metropolitan cities;  and actual diesel prices were below the retail import price indicator by 2.93 cpl for the five major metropolitan cities".

In March this year politicians and the ACCC berated the companies for supposedly failing to pass-on the 1.7 cpl cut in excise tax.  When the ACCC finally got around to looking at the evidence, it found that the companies had passed on the excise cuts immediately and in full.

Last week the pollies and regulators were at it again.  The Chairman of the ACCC, Professor Alan Fels claiming that the petrol companies were "un-Australian" for raising petrol prices on ANZAC Day.  The evidence shows however that the average price of petrol at the bowser actually fell on ANZAC day in Melbourne, Perth and Adelaide.  The average price did rise on the day in Brisbane and Sydney, but this was in line with the established weekly cycle rather than because of the holiday.

Australia has the lowest cost petrol on a pre-tax basis in the developed world.  This has been achieved by major improvements in efficiency with refining and marketing expenses declining by about 30 per cent in real terms since 1992.  The highly competitive nature of the industry has ensured that the lion's share of these cost reductions have been passed on to consumers.  Over the last decade petrol price before tax have declined 40 per cent after adjusting for inflation.  Moreover, the petrol industry's return on its refining and marketing operations on an after-tax basis has declined steadily over the last decade and now averages around 2%.  This is about a quarter of the average rate of return received by listed companies.

The regulators and the politicians know that Australian consumers are getting a tremendous deal from the local petrol industry.  However, they choosing to pander to populist myth.

The result will be a further decline in public support for market-based outcomes and tighter regulations -- as it is currently underway in South Australian and Western Australian Government.

It will also inexorably result in more costly petrol.

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