BusinessNZ is voicing process concerns in the market study into the retail fuel sector released today.

BusinessNZ says market studies are an intrusive power that can lead to regulated industries and increased regulation of the economy overall, and should be used with great care.

The market study into the fuel sector is the first in a planned series of market studies to be undertaken regularly by the Commerce Commission, and will set a precedent for later market studies.

BusinessNZ says the fuel sector study raises concerns about process that will need to be considered for future market studies:

Agreement over terms – There was disagreement between market players and the Commerce Commission about how profitability was assessed, with the study excluding factors such as international crude oil prices, currency movements and the level of taxes and levies on fuel.  Future market studies should ensure there is agreement between the Commerce Commission and the target industry on factors affecting profitability, and other terms.

Determining appropriate rate of return in contestable markets – The ability of the Commerce Commission to determine an appropriate rate of return in a contestable market such as the retail fuel market is less than in a natural monopoly industry.  Caution should be applied in future market studies of contestable markets.

Intervention in contracts – The fuel market study’s recommendation of regulating wholesale supply contracts raises general concerns about governmental intervention in commercial contracts.  Freedom to contract is a fundamental right that should not be intruded upon by the state.

BusinessNZ Chief Executive Kirk Hope said the business sector would be concerned at the risk of commercial returns being expropriated by regulatory action, reducing incentives to invest in the New Zealand economy.

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