John Murphy (Lowe, Australian Labor Party, Parliamentary Secretary to the Leader of the Opposition) Share this | Hansard source

I commend the member for Rankin for his passionate and withering contribution to the debate on the Petroleum Retail Legislation Repeal Bill 2006 this evening. The passage of this bill through the parliament is timely indeed. It comes at a time when rocketing petrol prices have inflicted pain at petrol station pumps for ordinary Australian households—a time when the price of living has climbed with inflation. The passage of this bill comes at a time when families are struggling with higher mortgage repayments following the latest interest rate rise under the Howard government’s stewardship. It comes at a time when Australians are burdened with record levels of debt and record proportions of household incomes are being swallowed up by home mortgage repayments. Clearly, this is not a time when ordinary Australians can continue to pay record high fuel prices. I am under no illusions about this, though I wonder whether a few members on the other side of this House still are, given the public statements they have made recently.

The debate about our energy future and the reform of the petrol retail industry, including the repeal of the two acts dealt with in this bill, have never been more important for my constituents in Lowe. The Petroleum Retail Marketing Sites Act 1980 and the Petroleum Retail Marketing Franchise Act 1980 are clearly past their use-by date—if ever they had one. These acts may once have had laudable public interest objects. In 1980 these acts compelled big oil companies to give up many of their retail sites or convert them into franchise operations. The ultimate intention of these acts was to minimise the control exercised by refineries over petrol prices in a market, apparently by increasing the breadth of the petrol industry structure and increasing small business participation.

Given the understandable cynicism many Australians hold towards the big oil companies, it may have made sense to maintain these tight regulations over the business structures they are able to adopt. Indeed, it seems that the economic orthodoxy still remains that government should limit the extent of vertical integration where there is a common ownership of the different stages of production of a product. Clearly, this is because of the potential for vertically integrated entities to engage in anticompetitive conduct, given their position in the supply chain, ultimately resulting in higher or unreasonable prices for consumers. Naturally, the accuracy of the premise underpinning restraints on vertical integration will depend on whether you are a supporter or an opponent.

Supporters of the Petroleum Retail Marketing Sites Act 1980 have sung its praises for placing restraints on the pricing power of the big oil groups. Opponents have spoken of reduced efficiencies in the petroleum industry. Despite prevailing attitudes seemingly supporting the former arguments about the potential misuse of vertical integration, a study in the US by John Gewecke titled Empirical evidence on the competitive effects of mergers in the gasoline industry from 2003 has stated that retail gasoline prices ‘tend to be lower if one company owns both refining and retailing operations than if they are owned separately’. Indeed, in a 2005 report titled Gasoline price changes: the dynamic of supply, demand and competition, the United States Federal Trade Commission stated:

The vast majority of the FTC’s investigations—

that is, into the petroleum industry—

have revealed market factors to be the primary drivers of both price increases and price spikes.

Contrary to expectations, the report also goes on to state that the price of petrol in those states that prevent refiners from operating retail outlets is generally higher than in states without those restrictions.

It would seem that, even at the best of times, legislation of the same ilk, such as that which this parliament proposes to repeal, has had little practical effect in alleviating the perceived problems they were introduced to address. Nonetheless, assuming that the Petroleum Retail Marketing Sites Act and the Petroleum Retail Marketing Franchise Act fulfilled their requirements in 1980 by maintaining the presence of small businesses and independent operators in the retail petrol sector, they seemingly have no role to play in the modern marketplace. This is a regulatory regime that is 26 years old, operating in an industry that bears absolutely no resemblance to the era for which it was designed. Of particular relevance is the fact that the Petroleum Retail Marketing Sites Act applies only to companies which have refining operations in this country. Thus, while supermarket chains including Woolworths and Coles now account for around 50 per cent of fuel sales, their activities do not fall under the scope of the act. The emerging class of retailers that are effectively regulation free have rendered this act useless for industry and for consumers.

The present rules surrounding the petroleum industry are unfair and inconsistent, in my view, leaving many in an invidious position of competing on an unequal footing with emerging competitors such as Woolworths and Coles. It is not in the public interest to continue to provide a free kick to retailers which are using low-margin discounted petrol sales to drive high-margin supermarket sales.

Refineries are giving the impression that a noose is tightening around their necks in light of their inability to absorb short-term losses through other means, such as grocery sales. I have no reason to disbelieve them. Despite the change in competitive dynamics in the petroleum industry and the need for refineries or marketers to compete vigorously with new market entrants, anachronistic legislation is unnecessarily restraining a freedom of choice in selecting appropriate business models.

It is at this point worth noting comments made by the President of BP, Mr Hueston, to the Senate Economics Legislation Committee about BP. He said:

... we do not have the freedom to operate the sites as efficiently as we can ... This has become increasingly important over the last few years, as the supermarkets have entered the game but not with the same rules that apply to us.

Such inefficiencies can only be imposing additional costs on refiners and marketers, which will undoubtedly be borne by consumers. Refiners are, for example, prevented from developing non-petrol offerings sufficiently so they can finance a cross-subsidy of petrol in a manner that would allow them to compete with Woolworths and Coles. The lack of flexibility with which to respond to market changes cannot, in my view, be helping the cause of competition in a market dominated by a few new players. It is a competitive advantage that is being sustained by the Commonwealth for the benefit of Woolworths, Coles and other groups who have exploited large, multisite franchising structures.

This protection, in the form of a distorted industry structure, naturally comes at someone else’s expense. Ultimately it is the consumer who has paid for a lack of competitive drive in the industry to get the cheapest possible prices at the pump. On this basis, I am happy to support the repeal of the Petroleum Retail Marketing Sites Act and the Petroleum Retail Marketing Franchise Act, which have served to perpetuate the problem. While these reforms do not provide an unequivocal answer to Australia’s petrol crisis, it has still taken far too long for the government to provide the four major players and the independent sector with the means to compete with supermarkets under a fair and realistic regime.

Debate interrupted.

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