Scott Morrison piles pressure on petrol companies

Phillip Coorey  Angela Macdonald-Smith
October 30, 2018
AFR
Scott Morrison has hinted at regulatory intervention to drive down the price of petrol but, behind the scenes, the government admits there is little it can do other than ensure oil companies are not colluding.
Caltex, too, claimed it was powerless to affect prices, which it said were a product of the low dollar and a high oil price. It noted that a “significant” portion of the cost of petrol was due to government excise.
It also rejected comparisons with electricity prices after Mr Morrison said he understood the angst the latest cost-of-living impost from petrol was causing and flagged action.
The government is directly intervening in the electricity sector and intends to arm itself with “big stick” powers to forcibly divest power companies if they do not lower prices.
“Now, I expect fuel companies to respond too and the government will consider any number of measures but it’s in the hands of the fuel companies to do the right thing by their customers, and the Australian Competition and Consumer Commission and I will be watching very closely,” Mr Morrison said.
“I get it that it’s very, very frustrating when Australians see the petrol prices move as they do. So the government will always be considering ways that we can put more pressure on petrol companies to do the right thing by customers, just like we are doing with electricity prices.”
Senior government sources agreed the petrol price was being driven by the low dollar and the rising international price of crude oil.
The sharp rise in global oil prices over the past year has pushed the average national price of unleaded petrol above $1.60 a litre, according to the Australian Institute of Petroleum, the highest in more than a decade.
Rising petrol and drought-affected food prices are expected to be the main inflationary factors in Wednesday’s Consumer Price Index for the September quarter, which economists tip will rise a modest 0.5 per cent to an annual rate of only 1.9 per cent. Yet cost-of-living complaints are being driven by weak wages growth.
Other than ensuring the ACCC was alert to any petrol company collusion, sources said the government’s only realistic option was to slash the 41.2¢ a litre fuel excise, which raises almost $20 billion a year including from diesel and other fuels.
In 2001, after petrol rose above $1 a litre, John Howard froze excise indexation and cut it by 1.5¢ a litre. The indexation freeze cost the budget billions and was restored only in 2014.
No intention to freeze
A government source said there was no intention to freeze or cut excise but at least one backbencher, Liberal MP Craig Kelly, said it should be contemplated. Mr Kelly advocated a reduction of 10¢ a litre, but only if it did not jeopardise the return to budget surplus.
Queensland MP Luke Howarth said he first complained to Mr Morrison several weeks ago. He disagreed with cutting excise. Instead, he accused the oil companies of profiteering, saying their margins were much higher now than when the oil price was last this high.
“The PM has got the message loud and clear we should be keeping prices lower,” Mr Howarth said. “Most of the price is going to retailers at the moment.”
Caltex chief executive Julian Segal said the fuel supplier did not benefit from higher pump prices and pointed out that both fuel sales volumes and margins had suffered in the September quarter as a result of rising prices.
The supplier reported a $20 million hit to retail earnings in the September quarter relative to the run rate in the first half due to higher prices.
“There are real reasons why these prices have gone up and that simply is crude prices have gone up significantly and the Aussie dollar has gone down, and then you should also remember a significant portion of every dollar that the customer pays is going into Scott Morrison’s pocket in the form of excise, for example,” Mr Segal said.
“I’m not implying in any shape or form that the excise not justified. It’s got a purpose and that’s for the government to decide. I’m making the point that the reasons for the prices going up … are not in our control.”
Mr Segal dismissed any comparisons between rising prices for petrol and increases in electricity tariffs, noting the electricity price increases had “nothing to do with increases in coal prices, for example”.
“It’s a different issue altogether in my mind, two different problems,” he said.
Chief financial officer Simon Hepworth said the squeeze due to higher prices was “starting to turn around”, however, and noted that it had been seen periodically before in the industry.
Vertium Asset Management portfolio manager Jason Teh said the petrol supply industry was already under regular close examination by the ACCC and he did not expect any further examination to unearth anything untoward.
“I don’t think they are going to find anything there,” he said. “The petrol industry already knows they are under extreme scrutiny.”