The information in table 8.1 contains general information about increases in average TGPs over time. It confirms that TGPs vary across states and largely reflect movements in international refined petrol prices. However, it does not provide an indication of the similarities or differences between TGPs within
31 Gull’s TGP is also included in the Perth average.
32 The average annual exchange rate has been calculated from RBA monthly USD:AUD exchange rates to be 0.71 in 2003–04 and 0.79 in 2006–07.
a state. This information is more relevant for an assessment of the extent of price competition as the geographic proximity of wholesale terminals is likely to affect the extent to which those terminals are close substitutes for wholesale customers. Average TGPs by supplier within a state in 2006–07 are shown in table 8.2.
Table 8.2 Terminal gate prices, average: 2006–07
Sydney Melbourne Brisbane Adelaide Perth
Company TGPs cpl cpl cpl cpl cpl BP 117.9 116.6 118.2 117.7 119.1 Caltex 119.5 118.8 119.0 120.4 120.6 Mobil 118.7 117.9 121.1 120.9 118.6 Shell 117.8 116.5 117.6 117.4 117.3 Gull 118.9 Average TGP 118.5 117.4 119.0 119.1 118.9 Highest average TGP 119.5 118.8 121.1 120.9 120.6 Lowest average TGP 117.8 116.5 117.6 117.4 117.3 Difference between
highest and lowest 1.3 2.3 3.5 3.5 3.3
Source: ACCC, major oil companies and Gull.
Table 8.2 shows that there was a degree of variability between various oil companies in average TGP within a state in 2006–07. This variability was highest in both Brisbane and Adelaide where there was a 3.5cpl difference between the highest average annual TGP and the lowest. By comparison, in Sydney the difference between the highest and lowest was 1.3 cpl.
8.6
Wholesale margins
As already pointed out, unlike buy–sell prices, wholesale prices include an explicit wholesale margin. Based on the confidential information available to it, the ACCC is satisfied that the following points can be made about wholesale margins:
The refiner-marketers build a fairly similar standard wholesale margin into their wholesale reference •
prices. Discounts from this margin may then be negotiated or price support offered. The band for negotiation is narrow, around 2 to 5 cpl.
Returns are also available to the refiner/wholesaler other than from the explicit wholesale margin. This •
is because a margin is necessarily built into various other components of the wholesale price. As with the buy–sell arrangements, a refiner/wholesaler will crystallise the Singapore refiner margin through the use of the Singapore benchmark price. In addition, the freight and wharfage components are charged although not actually incurred. This crystallises a key component of the location advantage referred to in chapter 7. Moreover, as set out in chapter 7, the quality premium is not simply based on additional cost but on what the market will bear. Quality premiums are negotiated elements of both buy–sell arrangements and wholesale supply contracts and can vary from location to location and between supply contracts without reference to any variation in standard. The levy imposed
through the quality premium is the other key component of the location advantage and refiners will endeavour to secure a return on this element. As with all elements of the price, their ability to do so will reflect the bargaining power of the particular party in that location.
The refiner can obtain margins on various elements of its wholesale price. Of course, that ‘margin’ •
will not necessarily be expressed as part of the wholesale transaction if the transaction is taken to commence after an internal transfer has taken place at a notional price. However, if the transaction is considered in its entirety, from refiner though to the end of the wholesale sale, these margins can be recognised.
The evidence supports the conclusion that, in applying IPP pricing policy, Australian refiners will seek •
to recover margin across every component of the IPP price formula. This is particularly evident in the observable variations in quality premium charged by refiners both to one another and to wholesale customers, and in the evidence that suggests that these premiums are struck by negotiation and not by reference to actual costs.
The evidence indicates that petrol wholesaling is a profitable activity for the relevant participants. •
Nevertheless, wholesale margins are narrow.
When discounts are taken into account, the actual gross margin obtained by the refiner-marketers •
varies within a range of around 1 to 3 cpl. The ACCC received evidence that, on a net basis, these margins may at times be negative.33 (Care should be taken, however, when analysing wholesale
margins as these margins are frequently determined as a margin built from a refiner’s internal transfer price which of course, is a notional price).
8.7
Future of wholesaling
Both the refiner-marketers and the independent wholesalers were positive about the future of wholesaling.
The refiner-marketers are seeking to expand their existing wholesale operations over the next 10 years and continue to supply to independent resellers. The independent wholesalers were also generally optimistic about the future of their wholesale operations.
A number of independent wholesalers noted that while there were increased opportunities to supply to small independent retailers due to the reluctance of the refiner-marketers to supply small retailers, they also considered that the number of small independent retailers would decline in the future as a result of competition with the supermarkets.
8.8
Conclusions
Based on the evidence received at the inquiry, it is the view of the ACCC that: the four refiner-marketers dominate the wholesale market
•
the buy–sell arrangements: •
create reciprocal benefits that are only available to other refiners thereby placing the refiner- •
marketers (as a group) into a position of competitive advantage even in non-refinery markets in conjunction with IPP pricing policy, they enable the refiner-marketers to effectively set a floor •
for the determination of wholesale prices in the wholesale market
while based on IPP, the price at which refiners supply to wholesale resellers is generally higher than •
the price at which they will supply to one another under buy–sell arrangements; as a general rule, the difference is broadly reflected in the alternative available supply source for the wholesale reseller—in other words, the final wholesale price does not reflect the cost to the refiner of importing but rather the cost to the wholesale customer of importing that fuel.
the evidence supports the conclusion that, in applying IPP pricing policy, Australian refiners will seek •
to recover margin across every component of the IPP price formula
the use of IPP formula-based pricing results in the refiner-marketers pricing in the same way across •
the wholesale market
in practice, wholesale prices available to customers in Australia vary considerably and are affected by •
numerous factors, the most important of which is the volume sought to be purchased; discounts and favourable terms are likely to be more generally available to larger players than smaller ones—regional differences in bargaining strength and proximity to refineries and seaboard terminals can also affect negotiations
the exclusive supply arrangements between the supermarkets, Coles Express and Woolworths and •
their respective suppliers, Shell and Caltex, have diminished the supply options for many independent resellers
while competition to supply distributors, independent resellers and other commercial and industrial •
customers can be strong and there can be regular changes of fuel supplier for pricing or other reasons, competition between refiner-marketers in wholesale petrol markets is not fully effective (discussed in more detail in chapter 13).