The Australian Competition and Consumer Commission has recommended to the Federal Government that the declaration for price purposes of the supply of petrol and automotive distillate by the four 'oil majors' be revoked during 1997, subject to certain conditions.

"These conditions include the development of more vigorous competition in the industry, which is expected to follow increased numbers of independent retailers entering the industry over the next 12 months through the growth and spread of imports of fuel," ACCC Chairman, Professor Allan Fels, said today. "The ACCC believes that as a result of restructuring and increased competition there are better prospects for lower prices in city and country over time.

"The price controls do not serve a very useful purpose. In most capital cities, they only restrain prices occasionally, and on those occasions only a little. At other times, the setting of the prices in fact facilitates price coordination, not competition, encouraging companies at times to charge the maximum price rather than a lower one. In rural areas the controls have been avoided to a significant degree by oil companies selling through distributors who are not subject to price restraints. In addition there have been some harmful side effects on the efficiency of the industry.

"The four 'oil majors' - Ampol, BP, Mobil and Shell - currently possess significant market power. That power comes from high concentration levels, high barriers to entry, and the depth and breadth of vertical and horizontal relationships between the market participants," Professor Fels said.

"They have exercised strong influence over prices and terms and conditions throughout retailing.

"However, over the next 12 months the ACCC expects to see increased entry by independents into the market, brought about through the easing of import barriers including greater access to seaboard terminals and the sale of distribution and retail sites following the Ampol/Caltex merger.

"The opportunities for imports are being enhanced, with limited imports already occurring in Victoria. Independent importers plan to begin operations in Sydney and Brisbane soon and it is expected that increased competition will follow, eventually lowering prices throughout Australia.

"The ACCC believes the balance of arguments is changing, in favour of removing controls.

"The ACCC believes that during 1997 the controls can be lifted. The reasons for lifting control in 1997 are:

there is likely to be improved competition;

the ACCC will have an opportunity by then to examine arrangements within the industry which give rise to some current concerns about anti-competitive effects, eg refinery exchange, borrow and loan, and joint terminalling arrangements;

time is needed to allow the very large number of contracts between oil companies and resellers to be renegotiated: most are currently based on maximum wholesale prices set by the ACCC

monitoring arrangements can be established; and

progress towards terminal gate pricing can occur.

Other major recommendations of the report are that:

the Petroleum Retail Marketing Sites Act be repealed;

the Franchise Act be repealed, subject to satisfactory modifications to the provisions of the new Oilcode and self-regulatory Code of Conduct;

the Department of Industry, Science and Tourism (which is responsible for the Franchise Act) takes up the issue of new franchise agreements with the oil companies with the purpose of greater simplification and the use of plain language;

site remediation costs be considered in the Oilcode process;

the Federal Government establish the process and timetable for the opening of coastal shipping to international vessels;

the State and Territory Governments give consideration to uniform franchise fees to eliminate border distortions; and

the State and Territory Governments give consideration to the mandatory display of price boards at service stations.

Professor Fels said the ACCC considered a number of options put to it to restructure the petrol industry.

"The ACCC particularly considered proposals to introduce terminal gate pricing. The ACCC found it is likely to offer some significant advantages, chiefly by providing established independents, country distributors and new players with the opportunity to supply city and country consumers with more competitively priced fuel.

"A requirement for oil companies to supply at the terminal gate cannot be imposed under current law. The ACCC considers that there are certain commercial prerequisites before meaningful supply will occur. In this respect new seaboard terminals operated for independents will have open access. This will put competitive pressure on all terminals, including terminals owned by major oil companies, to supply at the terminal gate.

"The terminal gate price enables the 'unbundling' of the supply of petrol from associated services such as transport and marketing and, as noted above, enables access of independents, new players and country distributors.

"The ACCC believes this can be brought about, and will be brought about by an appropriate commercial environment of the kind which is now starting to emerge. It has not sought to impose a regulated terminal gate price.

"There are also some significant problems with the idea considered during the inquiry of having a transitional regulated terminal gate price, including the need to re-negotiate many contracts, the need to determine a price which does not hinder imports, and the possibility it may increase distortions in distribution. It is possible that some evasion of state franchise fees could result.

"Additionally, the terminal gate price would become a regulated price which would do little to stimulate competition or encourage new entry.

"The ACCC believes there is a need for greater transparency of prices:

by posting, on a historical basis, actual or realised prices at terminals as a basis for negotiation between oil companies and resellers;

by the collection of more information about country prices assisted by motoring organisations. There needs to be a particular focus on 'hot spot' areas where prices are high.

"The ACCC will enter into discussions with motoring bodies and other interested parties about mechanisms for making prices more transparent.

"On country petrol pricing, the ACCC has found that increased competition, probably from importers, and not government regulation or subsidies, will assist to lower prices. The ACCC expects increased competition to follow a period of rationalisation of retailing in country areas.

"The ACCC expects that monitoring of 'hot spots' will create greater transparency in country areas.

"It is not convinced that the Franchise Act is significantly restraining restructuring, although it may have some adverse effects. The ACCC recommends repeal of the Act, subject to satisfactory modifications to the provisions in the new Oilcode and self-regulatory Code of Conduct.

"The ACCC believes that local and State/Territory governments could assist effective competition in regional Australia by freeing up regulations that effect new entry and market-based responses, including the products sold and trading hours.

"The ACCC believes that the end of cabotage would have a significant beneficial effect on petroleum prices through lowered costs."

The ACCC intends to keep a number of matters under close review for potential anti-competitive effects, including restrictions on entry to terminals or depots, multi-site franchising and tied agreements.

It will also review changes in the competitive environment, including developments in the independent importation, distribution and retailing of petroleum products. In particular there will some monitoring of retail prices through the transition to a more competitive market, especially in areas displaying high margins.