Ian Macfarlane (Groom, Liberal Party, Minister for Industry, Tourism and Resources) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

At a time when high fuel prices are impacting on all Australians, I am pleased to introduce the Petroleum Retail Legislation Repeal Bill 2006 (the bill).  This bill is a central component of the government’s Downstream Petroleum Reform Package (the reform package).  It will facilitate a more competitive retail fuel market with the potential for positive impacts on fuel prices at the pump.

The bill will repeal the legislation currently governing the retail petroleum industry; that is, the Petroleum Retail Marketing Sites Act 1980 (the sites act) and the Petroleum Retail Marketing Franchise Act 1980 (the franchise act).  These acts have failed to keep pace with changes in the structure of the retail petroleum market and have created a subcompetitive retail environment, which imposes higher costs on Australian industry and motorists.

As part of the reform package the government will also introduce a mandatory industry code, the Trade Practices (Industry Codes—Oilcode) Regulations 2006 (the oilcode), under section 51AE of the Trade Practices Act 1974.  The oilcode will institute a more effective regulatory regime to allow all industry participants to respond and adapt to changing conditions in the retail petroleum market without distorting or reducing levels of competition. 

The sites act restricts, via set quotas, the number of retail sites that the oil majors—that is, BP, Caltex, Mobil and Shell—can own or lease, and operate either directly or on a commission agency basis.  Current quotas are based on the volume of fuel each company has the capacity to produce at their domestic refineries and vary from 87 to 136 retail sites.  The total number of sites under the quotas represents about five per cent of all service stations nationally.

The sites act operates concurrently with the franchise act, as service stations run under a franchise agreement with an oil major are not subject to the sites act quotas.  The franchise act sets out the minimum terms and conditions for these agreements, including tenure, renewals and associated disclosure requirements.  No such legislated terms and conditions are afforded to small businesses operating under oil company, supermarket or independent retail chain commission agency agreements in this industry. 

In 1980, the sites act and the franchise act were considered to be an appropriate response to limit the potential price-setting activities of the oil majors and to promote a viable small business sector in the retail petroleum industry. 

The market has, however, changed substantially since 1980: independent retail chains and supermarkets, whose operating structures are not constrained by the legislation, have entered the retail fuel market; fuel quality standards have tightened in line with global environmental best practice; and global supply capacity has been stretched as demand from China and India continues to grow. 

In this commercial environment it is not surprising that industry rationalisation has also occurred. And at this point I would like to note that any change in the environment regulating the retail petroleum industry will not eliminate the rationalisation of retail sites that has been experienced by this industry over the past two decades. This has been driven by increased competition due to the factors I have just mentioned. However, I expect that rationalisation will eventually plateau as retailers compete on an even playing field facilitated by the oilcode and the number of retail sites reaches an optimal level in response to the demands of the domestic market.

The existing retail petroleum legislation needs to be seen in the context of the entry into the market of the large independent retail chains and supermarket retailers, whose business structures are not constrained by the legislation. The legislation serves only to place an additional compliance burden on the major oil companies and to hinder the oil majors’ freedom of choice in the selection of appropriate business models at all retail sites. The legislation also retains the disparity between the conditions provided to franchisees, who generally run oil major owned service stations, and those provided to commission agents, who tend to run service stations on behalf of the independent retail chains. 

It is for these reasons that the government is reforming the regulatory environment governing the retail petroleum industry. The reform package, and in particular the oilcode, will deliver positive outcomes for the retail petroleum sector and for Australian consumers, including a streamlined regulatory framework.

The package will recognise the power imbalance inherent in the substantial interdependency between some small businesses operating under the franchise and commission agency agreements and their wholesale fuel suppliers, whether those suppliers are oil majors or independent retail chains.

The oilcode regulations will achieve this outcome through three key policy initiatives. It will establish minimum industry standards for fuel re-selling agreements between wholesale fuel suppliers and fuel retailers to provide a baseline for negotiations on those agreements. These minimum standards build upon and strengthen relevant provisions in both the franchise act and the more general franchising code of conduct and will provide greater certainty and protection for all parties to fuel re-selling agreements. 

The oilcode will also introduce a nationally consistent approach to terminal gate pricing arrangements to improve transparency in wholesale pricing and allow access for all customers, including small businesses, to petroleum products at a published terminal gate price. This approach will not negate the ability of parties to negotiate individual supply agreements nor will it prevent the offering of discounts by wholesalers.

Finally, the oilcode will establish an independent downstream petroleum dispute resolution scheme to provide the industry with an ongoing, cost-effective dispute resolution mechanism as an alternative to taking action in the courts.

The oilcode represents a compromise on behalf of most industry participants, and I note that there are still a few interests, representing some of the independent operators, and some of the small businesses in the industry, who remain concerned that the oilcode does not prevent either below-cost selling or the provision of discounts to large volume customers in the wholesale market. 

The government does not seek to hinder discounting or other initiatives, such as shopper dockets, which have the potential to reduce the cost of fuel for Australians motorists. Indeed, the introduction of such measures would hinder the competitive nature of the market and be contrary to the government’s competition policy objectives. 

Through the oilcode, the government will institute a more effective regulatory regime to allow all industry participants to respond and adapt to the changing conditions in the retail petroleum market without distorting or reducing levels of competition. 

Consistent with this intent and to prevent market uncertainty and potential breaches of the sites act while this bill is under consideration of the parliament, I will shortly table an amendment to the Petroleum Retail Marketing Sites Regulations 1981. This amendment will suspend the oil majors’ reporting and compliance obligations under the sites act. It will not affect commercial arrangements under the franchise act in any way.  

The bill I introduce into the House today is the first step in a long-awaited reform in the retail petroleum industry. Coupled with the subsequent introduction of the oilcode under the Trade Practices Act, it will allow businesses in this industry greater flexibility when selecting the business structure which is best for individual service stations. It will provide greater coverage of standard contractual terms and conditions for fuel re-selling agreements where there is a substantial degree of interdependency between the retailer and the wholesale fuel supplier. 

The oilcode will provide greater transparency and consistency for all market participants and consumers in terminal gate pricing arrangements. It will provide all industry participants with access to a low-cost alternative dispute resolution service. 

Above all, the oilcode will increase competition in the retail petroleum industry by removing the constraints the current legislation places on the oil majors and instituting a more effective regulatory framework for this industry.

The Downstream Petroleum Reform Package represents a significant improvement in the operating environment of the retail petroleum industry. I commend the bill to the House and I present the explanatory memorandum.

Debate (on motion by Mr Gavan O’Connor) adjourned.