Submitted: Friday, Apr 18, 2008 at 12:11

I’ve commented previously on fuel prices and must confess my continuing interest in this topical issue – I don’t want to pay anymore for fuel than I need to!

This week the government announced it is introducing a FuelWatch scheme under which motorists will know the price of fuel 24 hours before they fill up. The FuelWatch scheme will force metropolitan and regional petrol stations to publicise their prices for the following 24 hour period at 2pm each day in a bid to give motorists more choice. Well it sounds good in principal – doesn’t it?

But in reality what does it mean for us fuel consumers? The ACCC Chairman, Graeme Samuel, is on record as saying that motorists should not expect savings and that FuelWatch is not a process whereby consumers might be able to shave one or 1.5 cents a litre off their fuel costs. Even the government is on record as saying FuelWatch would not necessarily reduce fuel prices, but would at least eradicate sudden price rises, increase competition and ensure motorists were paying not a cent more than they should.

Whilst it seems to be a concept that many consumers have difficulty in grasping the abrupt price fluctuations are not necessarily a bad thing because it means a healthy discount cycle exists and that consumers already enjoy competition because of it. The price falls quickly as refiners offer pricing support to retailers, and the price rises after that pricing support is withdrawn. These price changes, often by retailers within close proximity, are frequently misinterpreted as ‘collusion’ but many government initiated inquiries have highlighted this not to be the case. In fact, they have confirmed that motorists are better off as it enables fuel to be purchased at a discount on certain days, sometimes by up to 5/10 cents per litre than would normally have been paid in the absence of this discounting and confirming Australia as having one of the most competitive retail fuel industries in the world.

This lack of understanding on how the discounting cycle works and benefits a large number of fuel consumers has lead to an outcry by voters to the government to do something about the abrupt price changes. However, governments, of all persuasions, have a knack of finding the response that best quells voter disquiet, whether it solves the underlying problem becomes academic. It’s a bit like ‘Yes Minister’ – give the public what they asked for not what they need. FuelWatch may easily fall victim to this outcome and a number of motoring organisations already believe this to be the case in Western Australia.

Under FuelWatch consumers will be able to buy from the ‘cheapest’ retailer on the day and they will know exactly where to find this retailer 24 hours in advance. But over time, and in the absence of a healthy discounting cycle which regularly delivers savings of between 5/10 cents per litre, the consumers’ average annual fuel bill will most likely be higher.

The chief executive of Woolworths, Michael Luscombe is on record as saying Western Australia, where the scheme has existed since 2001, was one of the company's most profitable states because of FuelWatch. Adding that the company’s inability to match the lowest price in the marketplace in West Australia during the day has meant margins in Western Australia were stronger than most if not all states. Remember, no one can change the price once it is published at 2pm the day before.

I have great confidence in the equation (Government intervention + More regulation = Higher cost to everyone).

The cost of the transparency and higher regulation that FuelWatch delivers will, in all likelihood, mean an average higher fuel cost over time and comments from the ACCC, the government, and the Chief Executive of Woolworth’s points towards this as an outcome.

But don’t we want to pay less on average for our fuel, not more? So just who will be better off?


Diesel & Petrol Price Comparison (OECD Countries)

Tags: Fuel, Business, Legislation/Politics, News & Current Affairs
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