SUBJECT: Petrol Pricing

TREASURER:

Today the Government announces a wholesale shake up of the petroleum retail industry which is designed to give a new and better deal for motorists. With me today is David Cumming, the petrol pricing spokesman of the RACV, and John Moore, the Minister for Industry, Science and Tourism. I want to also acknowledge here today parliamentary colleagues Lou Lieberman, Russell Broadbent, Bob Charles, David Hawker and Fran Bailey, as people who have been working on this difficult area of petrol pricing for now almost two years.

This wholesale shake up of the petroleum retail and marketing sector is designed to give better prices for motorists, and, in particular, to give a better deal to rural and country motorists. What the proposals that are being announced today will do, as from the first of August when they take effect, is that they will open up the retail end of the industry, they will open up the distributing side of the industry, and they will open up the supply at the terminal gate. Distributors will have access at the terminal gate, provided they meet safety conditions, to open prices, best prices, from the oil majors. For the first time farmers’ co-operatives and other independent distributors will be able to go to terminal gates and to buy petrol at the going price, the best price, which is available from the oil majors. They will be able to supply it to the end of the retail industry which will allow new entrants to come in and to provide more competition at the retail end of the market. Competition will be heightened at production, distribution and retail ends so that competition will drive lower prices and that competition will ensure that people in rural and regional areas get a better deal.

In addition to that, the automobile clubs, in conjunction with the Australian Consumer and Competition Commission, will be monitoring prices to ensure that no unfair advantage is taken in areas where there is not adequate competition, to ensure that the consumer gets the best deal from these changes in relation to petrol. And I want to pay particular tribute to the RACV, the NRMA, other automobile clubs, which have been working on this proposal for a very long time to ensure that motorists get the best deal which is possible in relation to petrol prices.

The Government has been working on this policy now for nearly two years. We have secured co-operation from the oil majors in relation to opening up supply, in relation to open access, in relation to freeing up and making price transparency. We’ve secured co-operation from the retail end of the industry and my colleague Mr Moore will be announcing new safeguards in relation to that end of the industry and we’ve secured the co-operation of the automobile clubs and the Government policy has been motivated by a better deal for motorists, more competition, better pricing and a better outcome for the consumer. This will lead to greater transparency and greater competition, and in the end greater consumer benefit as a result of national worked-out agreements which we can announce today to be in place from the first of August of this year.

I just want to congratulate Peter on the work that he has done in relation to the deregulation of the oil industry. Industry for some considerable time has been approaching both of us to act in a way in which we can reduce petrol prices in Australia to the consumer both in the city and in the bush. This has particular relevance, I think, to industry in the bush and regional areas. It has enormous implications also for the ordinary motorist of Australia, who obviously is promoted by the motorists’ organisations. So I am pleased to be part of the announcement today. Industry will welcome the decision, oil code which comes into effect with this announcement will substitute the Sites Act and the Franchising Act, the oil code itself will give the protection necessary to the small traders. It will enable them, I think, to compete effectively in the bush and regional centres against the development of the Woolworths petrol sites and I believe that this in itself plus the ability to market and draw from the terminals your source of supply, I think will add enormously to the competitive advantage in the bush and to the cost of petrol in the bush which is so important to their industries.

From the RACV’s perspective, we welcome this policy announced today and congratulate Peter Costello and John Moore on the work they have done. Do not underestimate the enormity of what has happened here today. This is an industry that has been regulated since 1940, it’s been an industry where the existing policies that run it have been in place for 20-odd years. It’s been an industry where we have had 43 inquiries over the last 20 years into it and nothing has ever happened. This has been a national problem and it needed a national response. We have to congratulate the Government on what they have done because this is an area that everyone just said was just too hard. The Automobile Club of Victoria along with the Farmers’ Federation, 3 years ago put up a policy proposal to the Government and to the then Opposition, which is now the Government, and we’re pleased that finally somebody has adopted it. This is very good news for motorists and particularly country motorists.

Okay are there any questions?

Mr Costello, with getting rid of the price caps, what guarantee can you give that prices won’t actually go up?

Well the system that’s been working in the past is for a maximum endorsed wholesale price. That plainly hasn’t worked. What’s happened in relation to that wholesale price is in the city, after a round of discounting, petrol stations have come back to it. In the country it has been used as the floor where stations have worked from it. In relation to what we announced today, we announced open access. Any person can roll up subject to safety and commercial criteria and can take delivery at the best price at the terminal gate. They can then transport. We announced changes in relation to the retail end so that you can get more efficient retailing, so that retailers’ margins will also be under price competition. And as a third leg of that we have the automobile clubs, in conjunction with the ACCC, looking at prices at the retail end. Now what this is designed to do is to get competitive pressure all the way down the industry and all the way from the oil gate to the country petrol station, so that consumers all the way down can benefit and can get the advantage of competition and lower prices. Plainly the current system hasn’t worked. The current system which has been in place in relation to wholesale prices has not addressed the disparities, that’s why we needed a new system.

But there is a possibility that prices still could go up despite the pressures you’ve put in place …

Well, prices can be affected by external events such as world supply and the price of oil on world commodity markets. And matters like exchange rates. But this announcement, this major change in relation to petrol retail and marketing, means that the best possible prices in Australia can be achieved and what’s more best possible prices between city and country to ensure that regional and country centres get the advantage which they’ve felt locked out of in the past.

What’s the best case scenario?

Well the best case scenario I think is to see country and regional consumers getting some of the advantage of price discounting and some of the advantage of increased competitive pressures so that they feel that they can take the advantages they feel they’ve been denied for so long.

Are you prepared to put any sort of figure on your expected cut in petrol price …

Well, as I said before, there are factors which are outside our control in relation to world commodity prices and exchange rate prices, but I can tell you this. If you get new entrants coming in to distributorships, if you get farmers’ cooperatives, new rural distributors, coming in, getting best prices, transporting at lower cost, getting in to an effective retail competition back down in the regional or the country areas you’ll get a better price than you’ll get without it, than you’ll get under the current system, than you’ll get under the system which inquiry after inquiry has recommended should be changed and which from the first of August for the first time will be

The Service Station Association says that actually we might see service stations close in the country because it’s just too fragile out there to sustain such competition. That would be a fairly bad result, wouldn’t it?

Well why would you argue against competition when competition is going to give consumer benefit? Let me make this clear, we are changing the way in which petrol is marketed to give better prices for motorists. The bottom line of this is better prices for motorists. And increased competition which delivers better prices for motorists is the kind of outcome that motorists and consumers and eventually the whole economy will benefit from.

…. A lot of small businesses will close by saying that you’re expecting ….competition that will lead to that result

Not in the slightest because as the Minister for Industry has just said, one of the big parts of the changes in relation to this is a strengthened code, which will be of benefit to all small businesses and service station proprietors will have strengthened legal protection in relation to their business and commercial dealings with the oil companies. They will have additional protection. The point I was making in reply to the question over here is, competition is not a bad thing if it delivers better prices. Competition that delivers better prices is a good thing. And the argument that we should make the oil industry somehow uncompetitive, is an argument against motorists and against consumers and this is a policy for motorists and consumers, for the people that buy at the petrol bowser.

The Service Station Association … they told me on Saturday they’re annoyed that you didn’t consult with them when the Government had given them an undertaking that they would let them know in advance of any changes. They believe this has been a collusion between the big four oil companies and the Government.

Well, if they believe that they’d be quite wrong. They have more protection than they’ve ever had. This policy was a policy which we announced before the last election. It’s a policy that we have spent nearly two years putting in place and it’s a policy which is designed to benefit motorists and consumers and anybody who tells you that competition will not be a good thing is telling you that lower prices are not for benefit of motorists and consumers. Competition driving lower prices is of benefit to motorists and consumers and that’s the object of this particular policy.

Why haven’t you consulted with them (inaudible)

Well, we did, that’s not true.

Mr. Moore, well I’ll hand over to Mr Moore, but I’ll say in answer to that, there has been more extensive consultation in relation to this and this industry – I think David said 43 inquiries – let me say this probably was the 43^rd, the Australian Competition and Consumer Commission, and as a result of the changes recommended, today you’ve got action. Inquiries have come to an end and now action has begun.

Look, what the process was, Andrew Rogers QC from Sydney, was asked to speak to all the parties concerned in the industry to try and draw together a united front to endorse oil code. Now in fact he got down to three issues which were unresolved. All of those have been agreed by the industries that can be handled, and so that all the industries were consulted. Some may not like it, you can’t get a hundred per cent agreement right across the range, but this agreement has been generally endorsed.

So you’ll have to now repeal the Sites and Franchise Act.

The Sites and Franchise Act will be repealed.

With the increased competition would there be any effect on the amalgamation of the actual four big oil companies?

That’s a matter for commercial consideration by themselves. This has far greater recognition really of the role that importers are going to play, like the Liberty Oils of this world, who are a very big force in the Australian domestic market.

Mr Moore, how is this going to help the small trader service station?

Well, currently the small trader is under considerable pressure, particularly in the regional areas, when Woolworths come to town. And under those circumstances his game will be severely affected. And once we’ve withdrawn the Sites Act and the Franchise Act, the small traders in those towns will be able to co-operate together, in other words, consolidate to be able to have a significant size to create and continue the competition in those towns. Currently they cannot do that under the Sites Act.

They’ll be able to buy petrol together?

They’ll be able to merge their operations together, and there might be fewer sites but they can still provide the opportunities.

Mr Moore, (inaudible)

I just want to say in closing because David, I think, is going to say a few words in closing. I just want to acknowledge again the presence of the Members who worked so hard and long on this policy – Bob Charles, Lou Lieberman, Fran Bailey and David Hawker, Russell Broadbent, and I also saw Peter McGauran here, who I didn’t acknowledge before, but who as an Opposition spokesman ,worked a long time in relation to this, and I just wanted to acknowledge the efforts that you’ve put in as well.

Peter, just before you go, when can we expect to see a reduction in the federal fuel excise. I know that the RACV and many other sectors of the industry have wanted that…(inaudible) that together.

Well, in relation to fuel excise and taxes generally, you know our Government’s position. Our Government wants a better tax system. The only way you’ll get a better tax system is by arguing for tax reform in this country.

…so when a GST comes in…

Now, our government will be announcing plans for tax reform after full consultation which we’re still going through at the moment. Let me make this point. The only way you’ll get a better tax system in this country is through a Government which is prepared to take this on as an issue. You’ll never get it under a Beazley-led Labor Party which can’t come up with positive policy. You’ll never get it under the people that say tax reform is too hard. You’ll only get it from people that are prepared to lead in relation to tax, and the only people that are prepared to lead in relation to tax is the Coalition Government. Now, before you all go off onto tax questions, can I give the final word to David please?

Well, the final word is that we really do congratulate the federal government on this announcement. It’s great news for motorists after 20 years of a petrol pricing mess, and perhaps after you analyse the documentation we are more than happy to talk about where we believe this will benefit the motorist. Because at the end of the day the true test of good policy is if that policy delivers benefits to the bulk of Australia. And we believe this policy will do that.

Thanks very much.