Petrol and Diesel Prices : From Monitoring to Regulatory Guidelines

We often learn, through local media, that we are paying too much for petrol and diesel at the pump. No one can tell how real these claims are and definitely no one knows how much we are paying higher than what a fair price should be.

The Ministry of Economic Development (MED) is monitoring petrol and diesel prices at its website for years through a system called the “Importer Margin” and they are presenting graphs and figures of this system for the public to see. The Importer Margin System is defined as the difference between retail petrol price (minus GST and government taxes) and landed prices of Singapore Spot Prices (for petrol or diesel of similar quality to NZ specs) including freight and insurance. All prices/costs are converted to NZ dollar.

In general terms, the importer margin equals to:
Retail margin + wholesale margin + other expenses (inside NZ) such as transport and storage.

If you consider that retail margin and expenses are roughly constant, then the daily fluctuations in the Importer margin as we see it in MED’s curves translates to how much oil companies wholesale profits are moving up or down!



The problem with the current importer margin system is the following:
1- It is not possible to calculate the wholesale margin that the oil companies are collecting because of the multiple and inter-related factors embedded in the system.
2- There are many "flaws" in the basic assumptions upon which the system is constructed, most are to the companies’ advantage.

In order to achieve a more fair and transparent pricing system, the MED should consider developing its current system from being “monitoring” to being based on “regulatory guidelines” that the companies should comply with. This can be done and I believe that the Australians (through the appointment of “Oil Commissioner”) are slowly moving in that direction.