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Fuel Co-Operatives in Victoria Research Project

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Fuel Co-Operatives in Victoria Research Project FUEL CO-OPERATIVES IN VICTORIA RESEARCH PROJECT MAY, 2001 Prepared for the Department of State and Regional Development by Co-operative Development Services Ltd Fuel Co-operatives in Victoria Research Project 1 TABLE OF CONTENTS 1. PROJECT STATEMENT ........................................................................... 2 2. INTRODUCTION ....................................................................................... 3 2.1 BACKGROUND............................................................................... 3 2.2 PROJECT OBJECTIVES ................................................................ 4 3. ENVIRONMENT OVERVIEW .................................................................... 5 4. ORGANISATIONS SUPPLYING FUEL IN VICTORIA.............................. 8 4.1 INTRODUCTION.............................................................................. 8 4.2 CO-OPERATIVES SUPPLYING FUEL IN VICTORIA..................... 8 4.3 RURAL CO-OPERATIVES SUPPLYING FUEL IN VICTORIA ...... 9 4.4 SUMMARY TABLE OF MUNICIPALITIES.................................... 13 4.5 OTHER ORGANISATIONS SUPPLYING FUEL IN VICTORIA..... 15 4.6 CO-OPERATIVES THAT MAY SUPPLY FUEL IN VICTORIA IN THE FUTURE............................................................................ 16 5. SUMMARY AND OPPORTUNITY IDENTIFICATION ............................. 17 5.1 ADVANTAGES OF AGGREGATION ............................................ 17 5.2 ROLE OF LOCAL GOVERNMENT ............................................... 17 5.3 CONCLUSION ............................................................................... 18 APPENDIX: FUEL CO-OPERATIVE CONTACT LIST Co-operative Development Services Ltd Fuel Co-operatives in Victoria Research Project 2 1. PROJECT STATEMENT This Report has been prepared specifically for the Victorian Department of State and Regional Development in accordance with the Co-operative Development Services Ltd proposal submitted in January 2001. The information contained in this Report has been gained from the Rural Community Fuel Co-operative Feasibility Study, existing fuel co-operatives, primary and secondary research, Municipal Economic Development Officers, Office of Consumer and Business Affairs, and other sources. It has been prepared in good faith and in conjunction with the Department of State and Regional Development. The Report and its contents are not to be referred to, quoted or used by any other party in any statement or application other than by the Department of State and Regional Development, without written approval from Co-operative Development Services Ltd. Neither Co-operative Development Services Ltd, nor its servants, consultants, agents or staff accept responsibility to any other person for the contents of this Report including errors or omissions therein, however caused. Co-operative Development Services Ltd PO Box 24 Hepburn Springs Victoria 3364 Telephone: +61 3 5348 1544 Email: [email protected] Website: www.coopdevelopment.org.au Co-operative Development Services Ltd Fuel Co-operatives in Victoria Research Project 3 2. INTRODUCTION 2.1 BACKGROUND Rural Community Fuel Co-operative Feasibility Study During August 2000, the Department of State and Regional Development (DSRD) approved a grant to the Rural City of Ararat to determine the viability of establishing Fuel Co-operatives in rural Victoria, with a particular emphasis on primary producers and other businesses in the Buangor district. The Buangor community, DSRD, and the Rural City of Ararat accepted this feasibility study in October 2000. The Report determined that fuel co-operative operational options, which involved the construction and operation of a depot, purchasing of fuel and the responsibility for distribution logistics, were clearly not viable due to unacceptable levels of financial risk. The Report further concluded that the most efficient options for the Buangor community involved: θ Harnessing the combined purchasing power (and volume) of bulk users to enable them to purchase fuel at a lower price than that which would be available to small individual purchasers; θ The use of the co-operative business structure to operate essentially as a broker between bulk users and a fuel distributor; and θ Oil companies including independents would be encouraged to compete for the contract including responsibility for all logistics. This model is successfully used by a number of primary producer co-operatives in rural Victoria. The Buangor community had the option of establishing their own fuel broking co-operative or investigating joining similar geographically close co-operatives. At a public meeting, the Buangor community voted to investigate joining the existing Central Highlands Co-operative Ltd. The Feasibility Study has created considerable interest across the state of Victoria and it has been distributed to regional municipalities and made available on the DSRD web site. Co-operative Development Services Ltd Fuel Co-operatives in Victoria Research Project 4 2.2 PROJECT OBJECTIVES The Feasibility Study provided information of general value to many rural communities, however it focussed specifically on the Buangor community. The study identified a number of co-operatives in Victoria that act as fuel brokers – having arrangements with oil companies and fuel distributors to supply and deliver fuel to rural businesses. This Report identifies: θ Existing co-operatives that provide fuel to businesses in Victoria and their areas of operation; θ Victorian co-operatives which could add the provision of fuel to other services provided to their members; and θ Municipalities in the state of Victoria which are not currently serviced by a fuel co-operative. Co-operative Development Services Ltd Fuel Co-operatives in Victoria Research Project 5 3. ENVIRONMENT OVERVIEW It is prudent to summarise a variety of petroleum industry issues that applicable to the supply of fuel to rural Victoria. The following information provides a valuable overview for users of this Report. θ Recognition that many of the factors affecting the price of petroleum products are outside the control of consumers and fuel co-operatives; θ The price of petroleum products in Australia can be affected by: • The strength or weakness of the Australian dollar, particularly in comparison to the US dollar. Oil is bought and sold in US dollars. • The price major oil producing countries charge for oil and prevailing OPEC policy. • Federal Government excise and taxes including the results of the parity pricing system. • Tensions in the Middle East. θ Petrol pricing is a very emotional topic; however, OECD statistics are available to suggest that Australian unleaded gasoline prices excluding government taxes are amongst the lowest in the world. Including government taxes. Australian prices still rank favourably in world comparisons (Source: International Energy Agency Statistics). θ The petroleum industry in Australia has experienced significant change over the past two decades and the rate of change, as far as country areas are concerned, is accelerating. The industry has shrunk from eight (8) major oil companies to four (4), two (2) smaller refineries have been shut, and terminals, inland bulk fuel depots and service stations have been significantly rationalised. θ Increasing competition and resistance from consumers to accept the current increase in oil prices has nearly halved gross marketing margins in Victoria country areas. θ Low volume consumers and rural areas beyond major regional centres would be expected to benefit less from the squeeze in petrol margins. Co-operative Development Services Ltd Fuel Co-operatives in Victoria Research Project 6 θ Since diesel markets are not the focus of independents, a disparity is developing between petrol prices and diesel prices, particularly for small consumers. This is being reinforced by the impact of petrol and diesel supply and demand factors in the Asian region. θ Most wholesale petroleum product sales in country areas are undertaken through distributors. Pressure on fuel margins has contributed to the reduction of distributorships. There were 1700 distributors in Australia in 1975 - today, there are around 180. In Victoria, BP, Shell and Mobil have around 10 distributors and this number is likely to be reduced by 50% over the next few years. θ Distributors are becoming significant businesses, operating seaboard terminals, inland bulk fuel depots, service stations and convenience stores, and providing vehicle supplies, agricultural equipment and other supplies to farm communities. Today, the office of a distributor may be hundreds of kilometres from a customer, even in a relatively small state such as Victoria. θ The sale price and margins applicable to bulk fuel movements is influenced predominantly by logistics. Considerable logistical cost savings can be achieved by: • Reducing the number of times fuel is handled between the terminal and the end user; • Efficient use of trucks and human resources; • Use of regular planned delivery patterns based on usage, as opposed to random ordering and delivery; • Larger less frequent deliveries; • Requiring larger end user investment in storage facilities; and • Acceptance of regular delivery patterns to achieve optimum price – irregular deliveries may involve increased price penalty or time delays. θ Occupational Health and Safety and environmental issues are becoming increasingly important, particularly in regards to old, above ground storage facilities. θ Generally, larger volumes being
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