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Thursday, 23 September 1999
Page: 8762


Senator RIDGEWAY (10:19 AM) —I rise in support of the disallowance motion in relation to the Petroleum Retail Marketing Sites Amendment Regulations 1999 (No. 2).

The Australian Democrats are concerned about wholesale and retail competition in the petroleum industry so as to ensure that both the business owners and the consumers are given a fair go. It is the belief of the Australian Democrats that the Australian petroleum market is not yet at a point where it is mature enough in its diversity of ownership to sustain a significant level of vertical integration by a small number of large companies. I make specific reference to the independent network that exists and continues to grow.

The issue of vertical integration is a very pertinent issue in regard to today's disallowance motion. As I see it, major oil companies are no longer able to derive significant income from their refining operations. As a consequence of this they are looking to play a more significant role in the wholesale and retail sector of this market. One cannot deny the fact that there are those who believe that a greater level of vertical ownership will bring about some economies of scale. However, with such economies there are also two very important consequences that need to be considered before removing the veil and opening up the opportunity for such operations. These are, in effect: inefficiencies emerging from complacency, and temptations to become the price maker instead of the price taker. These two issues alone raise a significant enough question in my mind to raise the rung of caution that one peg higher. Part of the reason that my colleague Senator Andrew Murray has moved this disallowance motion is this overshadowing issue of vertical integration and its possible negative consequences, particularly over the longer term.

I have to say that, in my experience, healthy competition in the retail marketplace of any industry ensures the best outcome for all stakeholders. In the petroleum market, a large component of this healthy competition has come as a result of the influx of independent operators over recent times. Let me be clear about this. Whatever we do with the current reform process, we must ensure that there is provision for the independents to continue to be effective participants in the retail petroleum market.

Today, however, we are dealing with BP. BP have not just been a few retail sites over the number that they are legally allowed to operate; they are operating over double their legally allowable quota. How this came about is a question that only the senators to my left can answer. I will come back to this issue in a moment.

First, I think it would be wrong of me to espouse that the petroleum industry is an industry that is without problems. In fact, there are serious problems in a whole range of facets of this industry. This is in part why the process of reform has taken as long as it has. From reading the various reports on this matter over the past 20 years, it is almost as if we are continuing a circle of parties standing desperately at odds with each other, wanting to increase their share with no regard for the other stakeholders in the market.

The current process of reform has taken a serious amount of time to get to the position that we are in today. I am not sure that it is all that far advanced from where we were 20 years ago. What I do know is that the franchise act and the sites act have played an important role in shaping the direction of this industry. It is also true that we are on the road to some positive change, and I say this with my mind's eye viewing the benefits that will be gained from the Oilcode if it is introduced. However, the Oilcode is not something that can stand alone without support to ensure that vertical integration does not occur to a greater extent than is already occurring in this industry.

Taking this into consideration, I therefore think it is wise for us to take a few moments to look at some of the specific issues that are at play here. These issues relate to the structure of the petroleum industry itself. I want to talk very briefly about the commission agency sites arrangement. The operation of petrol stations under a commission agency agreement is something that some operators in the retail segment wish to have, but at the same time there are quite a number of operators who wish not to have this. A commission agent arrangement under the existing sites act means that the number of sites that are owned by the oil company remains limited to five per cent of the total number of sites. Maybe tolerance of this practice should be shown and this figure could be slightly increased. But even if this were to occur, it would need to be done as part of the whole reform process, not at the demand of one industry operator—the manner BP has used.

Second, I want to quickly talk about the franchise agreement sites. This is a situation where the retail petrol sites are set into a franchise agreement under the franchising act of 1980. The current structure of the market has these agreements in a situation of three sets of three years, giving a franchise time frame of nine years. Considering the level of investment, particularly in this instance from the franchisee, looking at lease times significantly less than this would mean greater changes to contractual arrangements under which the agreement is reached. This, however, does not mean that this form of operation should be disregarded. Franchising remains an effective and preferred means of operation for many retailers.

On the issue of terminal gate access, ultimately effective terminal gate access is the means by which competition at a wholesale level can be guaranteed. Unfortunately, with lagging margins in the refining process, oil companies have very much shied away from making terminal gate access effective. If it is to be what it really needs to be, then there ought to be freedom for retail operators under franchise agreements or otherwise to procure some significant proportion of their fuel from the lowest bidder. Interestingly, I think very few operators would actually exercise this right to buy fuel from other suppliers, but it would put oil companies on notice that they are not the only stakeholders in this industry. This brings me back to BP's conduct of late.

Since 21 September of last year BP have been failing to renew a significant number of their franchises, and hence this has placed the operators of these sites in limbo as to what the future will hold. This practice has meant that the site numbers that BP control have increased without regulatory concession—essentially, it was done illegally. I find it interesting that other oil companies appear to have been refranchising their sites, as they are required to do under the act—that was until BP's actions became clear. Those actions second-guess the reform process and seek to obtain commercial benefit from this anticipation of change without regard to the current laws.

I doubt that there will be agreement in the next few days on what the structure of the market will be, but the structure of the market is a side issue. A company operating outside of a parliamentary act and then expecting the parliament to overlook this operation by giving special regulatory concession is the issue. Having said that, I am not oblivious to the need for commercial businesses to maximise their opportunities in their respective markets. Yet I think that it is quite clear that BP would have to have refranchised these sites in any case as a result of there being no foreseeable agreement. Hence BP's commercial disadvantage argument holds no real weight in my mind. What does hold weight is the fact that the parliament sets in place laws and these laws must be adhered to.

The Australian Democrats have made their position quite clear in the minority report of the Senate Rural and Regional Affairs and Transport Legislation Committee into the Petroleum Retail Legislation Repeal Bill 1998 . We will not support moves in markets that foster greater levels of vertical integration. As I said earlier, this situation simply does not inspire a healthy, competitive environment for all of the stakeholders concerned.

Not being privy to the conversations that happened between the minister and BP repre sentatives, I do not know what has been promised or what deals have been done. What I am sure of is that, whatever deal was made, it was one that was inappropriate for the government to have made. If BP see themselves in a position of commercial disadvantage, then they need to look to the government and specifically to the minister as a place to vent their anger and frustration. The minister had no right to put this issue on the table for the Senate and then expect the Senate to swallow it without question.

The Australian Democrats' views are well known to all stakeholders that have taken the time to listen to what we have said. The government knew what our views were and it is very arrogant of them to have made the assumption that we should have simply accepted their regulation. So the message for the government from the Australian Democrats is quite clear: the laws are in place and they are there to be followed until such time as they are repealed.

If BP want to operate outside of these rules so as to obtain a commercial advantage, then they will suffer the consequences of such actions. I am yet to be convinced that BP should be offered special consideration against other oil companies. I feel that, if we are to give concessions to BP, then they must also be given to all of the oil companies. If we do this, then we ignore standards that are set in the sites act. In my view that is not appropriate, particularly given that the Senate is still deciding what the future of the sites act will be. In closing, I make my support clear for the disallowance of the Petroleum Retail Marketing Sites Amendment Regulations 1999 (No. 2).