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Report

Inquiry into fuel prices in regional Victoria: report

20 Feb 2018
Description

The Inquiry’s terms of reference asked the Committee to investigate fuel pricing discrepancies between regional locations and between Melbourne and regional Victoria. The Committee was also asked to consider the impact of fuel prices on regional communities and businesses, interstate best practices to reduce fuel prices and fuel price comparison tools.

Retail fuel prices consist of several components including the international benchmark price, Australian Government taxes and wholesale and retail costs. The Victorian Government has limited power to influence retail fuel prices, so the Committee’s main focus was on methods for consumers to compare fuel prices and interstate initiatives to reduce prices such as mandatory fuel price reporting.

The Australian Competition and Consumer Commission (ACCC) monitors fuel prices in metropolitan and regional Australian locations. It has found that the difference between the average petrol price in regional Victoria and Melbourne has narrowed in recent years. However, large price differences exist between some Victorian regions due to local market factors such as competition intensity and business operating structures. High fuel prices can have a significant impact on regional residents because they rely heavily on fuel to access services, work and education opportunities. High fuel prices also increase business operating costs, which can discourage business owners from investing, growing their operations or employing more staff.

In its regional market studies, the ACCC found that the level of competition in a regional market is a major determinant of retail fuel prices. Regional areas typically have less competition and lower sales volumes so they do not have fuel price cycles and prices remain stable for long periods. Fuel price comparison applications (apps) and websites can encourage competition between service stations by enabling motorists to make informed decisions about when and where to purchase fuel. These comparison tools rely on pricing information from private data collectors or crowdsourced data from motorists.

Existing fuel price comparison tools are not able to provide complete or timely data for all Victorian service stations. Three interstate governments, namely New South Wales, Western Australia and the Northern Territory, have implemented mandatory fuel price reporting schemes in order to provide full transparency. Under these schemes, all fuel retailers must report their fuel prices to a government agency that publishes this information online or on an app for consumers to access.

There is no evidence that mandatory fuel price reporting has reduced fuel prices in the jurisdictions where it operates. Complete price transparency across a market discourages fuel retailers from discounting because competitors can see their prices instantly and match them. Fuel discounters especially lose their competitive advantage and tend to be more conservative with their prices. The Committee found that mandatory reporting is unlikely to reduce fuel prices in regional Victoria due to the small number of competing service stations within reasonable travelling distance.

While complete price transparency may inhibit competition, the Committee is in favour of improving the fuel price information available to regional consumers, especially where information is lacking or not up to date. The Committee recommends improving public awareness of currently available fuel price apps and supporting the Royal Automobile Club of Victoria’s efforts to improve fuel price coverage on its app using prices submitted by club members.

The ACCC regional market studies also found the presence of a fuel discounter in a regional market helps to keep prices competitive. Therefore, the Committee recommends the Victorian and local governments encourage the entry of fuel discounters into regional markets by reviewing relevant planning policies.

Each regional fuel market has distinct characteristics that influence fuel prices such as the level of local competition, its proximity to major highways, the volume of sales and the business operating structures of individual service stations. The differences between regional fuel markets limit the ability to develop policy that will address pricing issues across each Victorian region. However, competition between service stations should be encouraged through the greater use of fuel price comparison apps and the entry of fuel discounters into markets with low competition.

Publication Details
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ISBN: 
978 1 925703 29 0
Language: 
Published year only: 
2018
28
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