Wednesday, 12 July 2017

Exemplary Bi-Partisanship

How Politics and Government Are Supposed to Be

New Zealand is a small country with a concomitant population.  It is relatively easy for companies to achieve near monopoly market power.  In the past there have been instances of "big business" being far too cosy with politicians and bureaucrats.  In recent times, less so.  The New Zealand economy is now one of the most open in the world.  Most kiwi businesses are now competing against global or international competitors--on our home ground.  

But the risk remains of oligarchies or duopolies emerging over time.  The oil/gasoline industry is one example.  Market power is concentrated in the hands of just a few large corporates--most with huge multi-national "parents".  It is, therefore, salutary and encouraging to see the Energy and Resources Minister, Judith Collins take an interest in the industry.
Energy and Resources Minister Judith Collins said a report into the retail fuel market had found "features which may not be consistent with a workably competitive market."  The gross profit margin on fuel at the pump had doubled to about 30 cents a litre in Wellington and the South Island over the past four years, the report found.   Higher profit margins in the South Island and Wellington were also "not explained by higher costs in those areas", it found.  [Stuff]
Collins is one tough Minister of the Crown.
 She is perceptive and knowledgeable, an experienced politician.  She is prepared to take on "Big Business"--which, we suppose, is pretty rare in many countries these days.  Another paper put the matter this way:
Fuel companies have been put on notice to drop prices after an inquiry concluded prices may not be reasonable - and Kiwis suffer the highest pre-tax fuel price in the OECD.  The report found higher prices in the South Island and Wellington aren't explained by higher costs in those areas - and efforts to analyse the issue were hindered after Mobil and Gull said they weren't able to provide data.  
On a cents per litre basis, average retail gross margins have increased from about 13 cents per litre in 2013 to 21.3 cents per litre in 2017. Fuel margins are the cost difference in what fuel is imported and sold for, after discounts, transfer price, storage and handling and logistics costs. Minister of Revenue, Minister of Energy and Resources Judith Collins asked for the report and today said it was "pretty clear" New Zealanders were paying too much for petrol. [NZ Herald]
Thus far there is enough smoke to suggest the flame of market collusion, but not enough hard data.  That is about to change.  Oil companies will be forced to divulge more information and data to the Commerce Commission--something which has not been required to date.  Strangely, petrol prices have been falling recently--to levels far closer to the OECD price point.  With a wry smile, Collins has suggested that the oil companies keep up the good work.

There is one other thing that is salutary in all of this: Collins has only recently assumed responsibility for the portfolio of Energy and Resources.  She acknowledges that the petrol pricing anomalies implying dominant market power were called to her attention by a member of the Opposition, Labour Party MP Stuart Nash.
 Asked why it had taken so long to find out about the potential problem, Collins said she had taken it on quickly after becoming Minister, after being alerted by Labour MP Stuart Nash.
When the report was published, Nash wasted no time expressing his support for the Minister's actions, and urging the Commerce Commission to complete its investigation, and the oil companies to co-operate fully.

How rare to see such bi-partisan behaviour.  How salutary its outcome is shaping up to be in this instance.

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