INDUSTRY COMMISSION Petroleum Products REPORT NO. 40 5 July 1994 Australian Government Printing Service Melbourne TABLE OF CONTENTS Page ABBREVIATIONS X GLOSSARY XIII TERMS OF REFERENCE XV PART A: OVERVIEW XVII FINDINGS AND RECOMMENDATIONS XLII PART B: 1 TABLE OF CONTENTS v PART A: v PART B: v 1v 3 INDUSTRY PERFORMANCE 21 vi V PETROLEUM PRODUCTS 6 PRICES OVERSIGHT AND COMPETITION 107 vii 10 ENVIRONMENTAL CONSIDERATIONS 199 ix 11 TRANSPORT 227 ix 12 TEMPERATURE CORRECTION 243 ix 13 TAXES AND CHARGES 251 x PART C: xi APPENDICES xi REFERENCES xi ABBREVIATIONS xii GLOSSARY xv TERMS OF REFERENCE xvii TABLE OF CONTENTS v PART A: v PART B: v 1v 3 INDUSTRY PERFORMANCE 21 vi 6 PRICES OVERSIGHT AND COMPETITION 107 vii 10 ENVIRONMENTAL CONSIDERATIONS 199 ix 11 TRANSPORT 227 ix 12 TEMPERATURE CORRECTION 243 ix 13 TAXES AND CHARGES 251 x PART C: xi APPENDICES xi REFERENCES xi ABBREVIATIONS xii GLOSSARY xv TERMS OF REFERENCE xvii 3 INDUSTRY PERFORMANCE 21 3.1 Use of capital 21 3.2 Use of labour 29 3.3 General indications of performance 36 3.4 Conclusion 46 TABLE OF CONTENTS v PART A: v VI PART B: v 1v 3 INDUSTRY PERFORMANCE 21 vi 6 PRICES OVERSIGHT AND COMPETITION 107 vii 10 ENVIRONMENTAL CONSIDERATIONS 199 ix 11 TRANSPORT 227 ix 12 TEMPERATURE CORRECTION 243 ix 13 TAXES AND CHARGES 251 x PART C: xi APPENDICES xi REFERENCES xi ABBREVIATIONS xii GLOSSARY xv TERMS OF REFERENCE xvii TABLE OF CONTENTS v PART A: v PART B: v 1v 3 INDUSTRY PERFORMANCE 21 vi 6 PRICES OVERSIGHT AND COMPETITION 107 vii 10 ENVIRONMENTAL CONSIDERATIONS 199 ix 11 TRANSPORT 227 ix 12 TEMPERATURE CORRECTION 243 ix 13 TAXES AND CHARGES 251 x PART C: xi APPENDICES xi REFERENCES xi ABBREVIATIONS xii GLOSSARY xv TERMS OF REFERENCE xvii 6 PRICES OVERSIGHT AND COMPETITION 107 6.1 Price control in petroleum product markets 107 6.2 PSA surveillance of petroleum products 109 6.3 The impact of PSA wholesale price regulation 116 VII PETROLEUM PRODUCTS 6.4 Hilmer report 123 6.5 Commission’s assessment 127 TABLE OF CONTENTS v PART A: v PART B: v 1v 3 INDUSTRY PERFORMANCE 21 vi 6 PRICES OVERSIGHT AND COMPETITION 107 vii 8 COMMONWEALTH SITES AND FRANCHISE ACTS 151 viii 9 REGULATION OF THE RETAIL SECTOR 175 ix 10 ENVIRONMENTAL CONSIDERATIONS 199 ix 11 TRANSPORT 227 ix 12 TEMPERATURE CORRECTION 243 ix 13 TAXES AND CHARGES 251 x PART C: xi APPENDICES xi REFERENCES xi ABBREVIATIONS xii GLOSSARY xv TERMS OF REFERENCE xvii TABLE OF CONTENTS v PART A: v PART B: v 1v 3 INDUSTRY PERFORMANCE 21 vi 6 PRICES OVERSIGHT AND COMPETITION 107 vii 9 REGULATION OF THE RETAIL SECTOR 175 ix 10 ENVIRONMENTAL CONSIDERATIONS 199 ix 11 TRANSPORT 227 ix 12 TEMPERATURE CORRECTION 243 ix 13 TAXES AND CHARGES 251 x PART C: xi APPENDICES xi REFERENCES xi ABBREVIATIONS xii GLOSSARY xv TERMS OF REFERENCE xvii VIII TABLE OF CONTENTS v PART A: v PART B: v 1v 3 INDUSTRY PERFORMANCE 21 vi 6 PRICES OVERSIGHT AND COMPETITION 107 vii 10 ENVIRONMENTAL CONSIDERATIONS 199 ix 11 TRANSPORT 227 ix 12 TEMPERATURE CORRECTION 243 ix 13 TAXES AND CHARGES 251 x PART C: xi APPENDICES xi REFERENCES xi ABBREVIATIONS xii GLOSSARY xv TERMS OF REFERENCE xvii 10 ENVIRONMENTAL CONSIDERATIONS 199 10.1 Environmental regulation 199 10.2 Emissions 204 10.3 Lead emissions from petrol used in motor vehicles 208 10.4 Contamination of sites from underground storage 216 10.5 Waste oil 221 11 TRANSPORT 227 11.1 Road transport 227 11.2 Rail transport 230 11.3 Coastal shipping 231 11.4 Port authority services and activities 239 12 TEMPERATURE CORRECTION 243 12.1 Background 243 IX PETROLEUM PRODUCTS 12.2 Costs and benefits of temperature correction 244 12.3 The practicalities of switching to temperature correction 247 12.4 Market responses that mitigate measurement errors 248 12.5 Is there a need for temperature correction? 249 13 TAXES AND CHARGES 251 13.1 Current arrangements 252 13.2 Road user charges and road funding 261 13.3 Revenue raising burden on petroleum products 265 13.4 Rebate arrangements 272 13.5 State franchise fees 281 X PART C: APPENDICES A INQUIRY PROCEDURES B VERTICAL ARRANGEMENTS IN THE PETROLEUM PRODUCTS INDUSTRY C THE ACCESS ECONOMICS/MTAA PETROL RETAILING MODEL D ALTERNATIVE FUELS FOR TRANSPORT E THE TRADE PRACTICES ACT AND THE PETROLEUM PRODUCTS INDUSTRY F PRICES OF PETROLEUM PRODUCTS IN COUNTRY MARKETS G PSA PRICE SETTING AND MINISTERIAL DIRECTIONS H CASE STUDIES OF COUNTRY PRICES: SALE AND TAREE I HISTORY OF PRICE CONTROL AND PSA INTERVENTION IN PETROLEUM PRODUCTS J DEREGULATION OF THE PETROLEUM PRODUCTS INDUSTRY IN NEW ZEALAND, UK AND USA K FRANCHISING IN AUSTRALIA L WASTE OIL RECYCLING M ECONOMY-WIDE EFFECTS OF CERTAIN TAXATION ARRANGEMENTS REFERENCES XI PETROLEUM PRODUCTS ABBREVIATIONS AAA Australian Automobile Association ABS Australian Bureau of Statistics ACM Australian Chamber of Manufactures ACORC Australian Cooperative Octane Requirement Committee ACTU Australian Council of Trade Unions AIP Australian Institute of Petroleum AIRC Australian Industrial Relations Commission AMC Australian Manufacturing Council Ampol Ampol Limited AMSA Australian Maritime Safety Authority ANZEC Australian and New Zealand Environment Council ANZECC Australian and New Zealand Environment and Conservation Council APADA Australian Petroleum Agents and Distributors Association APCO Anderson Petroleum Company APRA Australian Petroleum Retailers’ Association ATC Australian Transport Council AVGAS Aviation Gasoline AVTUR Aviation Turbine Fuel BP BP Australia Ltd BOMA Building Owners and Managers Association ACT Division bpd barrels per day BTCE Bureau of Transport and Communications Economics Caltex Caltex Oil (Australia) Pty Limited CEPA Commonwealth Environment Protection Agency XII CIE Centre for International Economics CNG Compressed Natural Gas CPI Consumer Price Index Customs Australian Customs Service CVP Continuous Voyage Permit DEST Department of the Environment, Sport and Territories Diesel Automotive diesel fuel DIST Department of Industry, Science and Technology DTAC Department of Transport and Communications EBIT Earnings before interest and tax Esso Esso Australia Limited FDA Free delivery area Franchise Act Petroleum Retailing Marketing Franchise Act (1980) GMHA General Motors Holden Automotive Limited Gull Gull Petroleum (WA) Pty Ltd IAC Industries Assistance Commission IGAE Inter Governmental Agreement on the Environment LPG Liquid Petroleum Gas MFD Act Motor Fuel Distribution Act of South Australia MFLB Motor Fuel Licensing Board MIDC Maritime Industry Development Committee MMC Monopolies and Mergers Commission Mobil Mobil Oil Australia Limited MTAA Motor Trades Association of Australia MTASA Motor Trades Association of South Australia MTBE methyl-ter-butyl-ether NAASRA National Association of Australian State Road Authorities NEPA National Environmental Protection Authority XIII PETROLEUM PRODUCTS NHMRC National Health and Medical Research Council NRMA National Roads and Motorists’ Association NRTC National Road Transport Commission NSC National Standards Commission NZIER New Zealand Institute of Economic Research OECD Organisation of Economic Cooperation and Development OICPAC Oil Industry Code of Practice Administration Council PCB poly chloro butane Petrol Automotive gasoline or motor spirit PJT Prices Justification Tribunal PPPA Petroleum Products Pricing Authority PSA Prices Surveillance Authority RACQ Royal Automobile Club of Queensland RACV Royal Automobile Club of Victoria SABRRO South Australian Regulation Review Office SCOCAM Standing Committee of Consumer Affairs Ministers SCTM Standing Committee on Trade Measurement SECV State Electricity Commission of Victoria Shell The Shell Company of Australia Limited SIRA Shipping Industry Reform Authority Sites Act Petroleum Retailing Marketing Sites Act (1980) SVP Single Voyage Permit TPA Trade Practices Act (1974) TPC Trade Practices Commission TWU Transport Workers’ Union of Australia UST Underground storage tank Victorian EPA Victorian Environmental Protection Authority VOCs Volatile organic compounds XIV GLOSSARY B-double A combination road freight vehicle consisting of a prime mover hauling two semi-trailers with the second semi-trailer mounted on a turntable at the rear of the first. Barrel A barrel is an imperial measure used by the oil industry. One barrel is equivalent to 158.987 litres. Branded Dealer Purchases the product and the brand name from the supplier and sells the product through his/her own site. Commercial A business to which the supplier will pay the cost of Customer transporting the product from the supplier’s base to the business’s site. Company-owned An oil major employee manages a site owned by the oil and Managed Sites major. Commission Agent Receives a commission for selling the supplier's product through a site owned by the supplier. Distributor Business operated for the pupose of receiving, storing, selling and delivering petroleum products to resellers and other end users. Franchisee Earns a margin for selling the supplier’s product through a site leased from the supplier. Independent Purchases the product from the supplier and sells it Distributor through its own depot and equipment. Independent Source fuel either from the oil majors or from imports Wholesaler and use their own distribution facilities to supply their own retail networks. Independently No proportion of the sites and assets of the wholesale or Owned retail business is owned by the any of the oil majors. Jobber Accesses multiple supply sources, wherever it is cheapest, and sells it through his/her own depot and equipment. Jointly-Owned The distributor and oil major each own a share, Distributorship normally 50 per cent, of the distributor business. XV PETROLEUM PRODUCTS Lessee Distributor Owns the distributor business but purchases the product from the oil majors and sells it through oil major owned depot and equipment. Oil Majors The refining/marketing companies — Ampol, BP, Caltex, Mobil and Shell. Own-brand Dealer Purchases the product from anywhere and sells it through his/her own site under its own brand. Primary Distillation The different boiling points of individual crude oil components are utilised to separate light and heavy fractions.