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Wednesday, 22 August 1984
Page: 102

Senator BUTTON (Minister for Industry and Commerce)(10.15) —I move:

That the Bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows-

This Bill proposes to amend the Petroleum Retail Marketing Sites Act 1980 to make it simpler and more effective in meeting the Government's objectives. The Sites Act was introduced by the previous Government to effect, through the allocation of site quotas, a 50 per cent reduction in the number of retail service stations operated directly by the major oil companies in Australia. In this Government's pre-election statement on business regulation, we undertook to continue the policy of restricting the involvement of the major oil companies in the retail petroleum market by a process known throughout the industry as divorcement. We acknowledge that there are price competition advantages in permitting the majors to have some share of the retail market but consider the involvement of these corporations should be restricted to protect small businesses operating in the market. The Government has undertaken to closely monitor the process of partial divorcement now occurring under the Petroleum Retail Marketing Sites Act to ensure that a satisfactory balance is struck and maintained between the interests of consumers, service station dealers and oil companies.

In my speech introducing the related Petroleum Retail Marketing Franchise Amendment Bill 1984 I outlined briefly the background to the Government's policies and the reasons that have led the Government to continue with the petroleum retail marketing legislation package.

I believe it would be helpful if at this point I were to outline the background to the current sites Act and the Government's proposals under this Bill to continue a partial divorcement policy. Prior to the introduction of the legislation in 1980 there was an acceleration in the trend on the part of some oil companies to move away from marketing motor fuel through lessee and independent service station operators to direct selling of motor fuel to the public. Generally these direct sales were made at stations operated for an oil company by a commission agent. Figures provided to the previous Government indicated that total company operated site numbers, that is, sites operated by company employees or commission agents, had increased from 578 in June 1978, to 670 in June 1979, and to over 800, not counting special purpose sites, in May 1980. In the same period total service station numbers declined from 14 281 to 12 411.

The movement to oil company operated sites caused some concern in the community because of its effect on small businesses in the industry, and gave rise to claims of unfair competition. There were also fears that if the trend continued the resultant increased vertical integration by the major oil companies would have had long term, anti-competitive effects. When in opposition, we supported the previous Government in the particular and unique circumstances of the petroleum industry, in its belief that the time had come to arrest this trend. We also generally agreed with the previous Government's position that total divorcement, that is, a complete prohibition on oil company direct retailing, was not necessary to achieve the stated objectives in this area. It was considered that a reduction of about 50 per cent in the number of retail sites directly operated by the companies at 30 May 1980 would be adequate. This reduction was to 401 sites overall.

A further concern of the previous Government, which we shared, was that the practical effect of the franchise Act might be nullified if there were no restrictions on oil company direct operations, as a number of companies would not elect to retail through lessee-franchisees, and therefore be subject to the franchise Act, if they could retail directly without any legislative restraints. The Government does not wish to depart from the policy of partial divorcement. Nor does it consider that a departure from a 50 per cent level of divorcement in either direction has been shown to be in the long term interests of the industry or consumers. Rather, the Government's proposals, contained in this Bill, will provide for an effective 50 per cent divorcement level, by clarifying the intent of the current Act and closing a number of loopholes. The corporations subject to the restrictions of the sites Act are those listed in the Schedule to the Act . In 1980 these were the nine major oil company groups operating in Australia. The schedule currently lists the following companies: Ampol, Amoco, BP, Caltex, Esso, Mobil and Shell. Mergers and takeovers which have occurred since 1980 have seen H. C. Sleigh (Golden Fleece), Total, and recently Amoco, disappear as separate entities from the retail market.

On 18 April 1984, the Government's decisions on changes to the Act were announced following a review of the legislation by the Department of Industry and Commerce. There has been increasing pressure on the Government to bring independent oil companies, that is, companies other than the current majors, within the ambit of the sites Act. The Government has given this careful consideration, as it recognises the important competitive influence of independents in the retail market. On the other hand, it is important that one group of competitors should not be unfairly disadvantaged by legislation as opposed to another group.

The Government has decided not to change the Schedule to the Act to include independents as prescribed corporations. It is considered that the current independents' lack of refining capacity, and their dependence on the major refiner-marketers for the majority of their supplies of refined product, distinguishes them in a fundamental way from the corporations presently subject to the Act. However, in the future, should independent oil companies acquire the fundamental refining characteristic of the major oil companies, or should they import more than half their refined product, they may become subject to the Act if they also choose to direct-operate sites in the retail market. The Government 's decision in this regard has been taken in the interests of fairness to all groups in the industry so that the same rules may apply to all corporations possessing the same essential characteristics and is embodied in clause 3 of the Bill.

The present Act makes available, in addition to each corporation's quota of sites, certain special purpose sites. Each corporation is currently able to operate one training site in each State or Territory and one market research site in each State. In addition, diesel fuel sites are not included in quotas as these are sites which are principally used for the sale of diesel fuel for heavy vehicles and not for the retail sale of petrol. Provision is also made for temporary operation of sites in special circumstances for a limited period.

Clause 3 removes the current exemption for market research and training sites. While the Government does not deny the necessity for companies to conduct legitimate market research and training to improve services to consumers, it believes these are ongoing activities, which can be, and ought to be, accommodated within a corporation's overall quota. Further, clause 3 continues the exempt category status for diesel fuel sites, but replaces the current principal use test with a volume based test. Diesel fuel sites will continue to be exempt only if they are clearly diesel oriented. The new test prescribes that a minimum of 100,000 litres of diesel fuel per month must be sold from the site and, at the same time, that no more than 100,000 litres of petrol per month may be sold by retail. The exemption for the temporary operation of sites in special circumstances will be continued for a maximum four-month period.

On the basis of the proposed changes to the current Act's exempt category special purpose sites, the Government has decided to set the total quota of retail sites at 425, which is the original 401 plus half the market research and training sites in operation in late 1983. As these latter sites had not been previously subject to divorcement, the Government has decided that this should now be reflected in the final total quota. The total of 425 may be varied marginally in future, due to rounding, during any reallocation of quota. The previous Government devised a formula for allocating the total site quotas amongst the corporations. This allocation, however, has resulted in many inequities and has been widely criticised by several companies who argue that it does not adequately reflect their share of the market, nor does it reflect commercial reality. The Government considers this criticism to be valid and believes a more equitable method for the allocation of quotas is to base each company's quota on its comparative market share of total petrol sales over a three-year period. A review of the market shares will be conducted every three years, and quotas adjusted accordingly, to reflect current market positions of the affected companies. Experience has shown, however, that market shares, aside from those combined due to company mergers, change only marginally over a period such as three years. Failure to use a quota will not lead to a reduction in that quota and, because of the market share allocation, quotas will not be transferable between companies, unless mergers occur. The Government's decisions permit oil companies to achieve their final quotas in six-monthly phasing periods to 1 July 1986. This is necessary to give the companies sufficient time to make any necessary changes to their retail operations. The first changes will occur on 1 January 1985 when this amending Act comes into force.

Turning to the question of which company operated retail sites the Act should apply to, the Bill proposes a new application test to clarify the application of the current Act to predominantly wholesale or bulk fuel establishments, that is, depots. Companies for the last three years have been given additional temporary quotas to cater for wholesale depots which have been subject to the Act because they also engage in some level of retailing. This problem was not fully appreciated until after the 1980 legislation was introduced and, as a result, additional quotas have been allowed by regulation, pending amendment of the legislation. An additional 348 depot site quotas have been made available on top of the 401 service station quotas, resulting in a combined total of 749 site quotas. As this Bill does not distinguish between depots and other oil company operated sites, the quota phasing arrangements provide for a total movement downwards from 749 available quotas to the new 425. However, this is not quite as severe a reduction as first might appear. Not all of the 348 additional depot sites covered by the extension to quotas engage in significant retailing of petrol and, therefore, not all will be caught by the measures in this Bill. Furthermore, the companies have been on notice for some time that these additional depot quotas have a limited life and I understand that they have been reducing retailing from these sites. Companies have also been rationalising their depots, particularly in country areas.

Clause 5 introduces the new application test, replacing the current uncertain percentage test with a volume based test similar to that in the franchise Bill. Sites operated by the corporations, where direct retailing of petrol by or on behalf of them in any month exceeds 30,000 litres, will be included in quota. This monthly test is less cumbersome administratively for both the Government and oil companies and is more definitive than the current percentage test. The Bill provides for sales to government account customers to be exempt from the volume test. The volume threshold test has been set low enough so as to provide sufficient disincentive for an oil company to direct-operate a retail site outside its quota allocation. The Government proposes to review the level of the volume test periodically.

Clause 5 also embodies the Government's policy that the sites Act and the franchise Act should not be capable of applying concurrently at any one site. Submissions have rightly presented the view that the application of the franchise Act to a site to which the Act sites applied would be illogical, as it would virtually render ineffective an oil company's right to direct-operate that site. This clause, together with the transitional clause in the franchise Bill, should prevent this occurring.

Clause 7 makes certain amendments to the returns provisions of the principal Act to reflect the change in the application of the Act from a daily to a monthly basis. This change accords more closely with the industry's own sales monitoring arrangements and should reduce the administrative work load for affected companies.

Clause 9 clarifies the existing penalty provision of the Act and increases the pecuniary level for one type of contravention. A corporation will continue to be subject to a maximum fine of $10,000 for a breach of the quota provisions, but it will now be specified that a separate contravention will result from each site operated in excess of quota. For a breach of the reporting requirements of the Act, the maximum penalty is to be increased to $5,000 per contravention, on the basis that adherence to the returns requirements is essential for the effective administration of the Act and the integrity of the Act itself.

These two Bills that I have just introduced amend a package of measures designed to assist the continuation of a viable, vigorous and competitive small business sector in the petroleum retail market. They will continue the objectives of the previous Government in promoting greater fairness and ensuring that future rationalisation in the industry, having regard to the history of the industry, will continue to take place on an equitable basis. At the same time, by encouraging diversity at the retail level, the Government believes they will continue to promote competition in the short and long term. We are confident that the new measures will not prevent the rationalisation, investment or innovation already taking place within the industry.


The measures introduced by this Bill will require no additional financial outlay by the Government. I commend the Bills to the Senate.

Debate (on motion by Senator Reid) adjourned.