Michael Hatton (Blaxland, Australian Labor Party) Share this | Hansard source

I am happy to follow my colleagues in this debate in endorsing the fundamental approach taken in the Petroleum Retail Legislation Repeal Bill 2006. The stance that Labor has taken in 2006 is not the same as that taken in 1999, when a bill that was almost exactly the same as this one was under consideration. Indeed, it was under consideration in 1998, and it has taken eight full years for a virtually identical bill to it to reach this place.

In those eight years, much has changed within the petroleum industry—not so much in the refining but certainly in the marketing and ownership and the effects of those on franchisees and people on commission. But the dramatic change has been the entry of the two major supermarket chains, Coles and Woolworths, into this market.

This legislation has been a long time coming. The reason it was not introduced in 1998 was that the participants could not agree on an outcome, so the government pulled back. As Labor indicated in our report to the Senate, the fundamental and critical thing missing in the legislation in 1998-99 was the establishment of an oil code. If the two regulatory mechanisms were to be taken away—the sites act and the franchisee act—then an oil code needed to be put in place to provide some protection for those franchisees, for people on commission and for the independents.

The fundamental problems faced by the operation of these acts over the last number of years go to the question of the dramatic changes we have seen right across the industry. If you go back to that period in time when the acts were put in place, in 1980, I think Australia had in the order of 25,000 service stations. I stand to be corrected on that. We are now down to about 7,000 service stations, and that number is declining. There has been a massive concentration of the numbers of service stations Australia wide. That concentration and diminution in numbers has continued apace and the expectation is that there will be fewer service stations available in Australia and fewer opportunities for people who are franchisees, independent operators or commission agents to get the best sites. Take the situation in 1980, when the oil majors dominated the market and when franchisees argued that there had been an abuse of market power. This proposed act does in fact return us to a pre-1980 situation where the oil majors are freed from a restriction on the number of sites they can have and freed from a number of other restrictions.

The reason that has happened is the entry of the other great factor: the two supermarket chains and the fact that, in the case of Woolworths, they have undertaken to do a deal with some Caltex service stations that are close, geographically, to Woolworths outlets to include them in their shopper docket scheme to give 4c off per litre of petrol. We have also seen Coles do a deal with the whole of the Shell chain. That of course leaves out Mobil and BP. Most of BP’s operations have involved major contracts and understandings with government agencies and other large companies, and they are looking to that market, so they are not looking so much to the normal retail and domestic retail as they are to that broader fleet market, and their discounting is directly to them.

The changes here are in fact the greatest. As the member for Prospect indicated, and as the member for Hunter previously informed me, the situation here is different from what it was then because the government has already moved to vitiate the sites act. By regulation the government has said, ‘The sites act that operated from 1980 on does not really apply anymore, because we will just take those designated sites and pull them away and recognise the fact that the whole industry has dramatically changed.’ So we are faced with a return to the pre-1980 situation, a return to the potential dominance of the oil majors.

But the major factor that we have on the other side is the dominance of the retail chains Coles and Woolworths as a potential counterbalance to the power that the oil majors have exercised. What we are offered under this legislation, known in shorthand as the Oilcode, are three key things. The second reading speech and the explanatory memorandum run out the three policy initiatives in this way: (1) to establish minimum industry standards for fuel re-selling agreements between wholesale fuel suppliers and fuel retailers; (2) to introduce a nationally consistent approach to terminal gate pricing arrangements to improve transparency and wholesale pricing and allow access for all consumers; and (3) an independent downstream petroleum dispute resolution scheme to provide the industry with an ongoing cost-effective dispute resolution mechanism as an alternative to taking action in the courts.

These things one hopes and trusts may be of some help or assistance and they may lead to a more efficient operation of the industry. After more than eight years the oil companies have come forward and said that they will accept what is being proposed here and they in fact welcome the government’s legislation.

Mr Deputy Speaker Scott, you will not be surprised to hear that a number of independent operators, people working on commission and those who are franchisees do not welcome this legislation because of the impact they fear it will have on them. They see the potential for the situation they complained about in 1980, when they saw an abuse of power by the oil majors, to happen here. Labor, in demanding that there be an oil code before this legislation can properly come before the House, has argued quite sensibly that, if you do not have a beefing up of section 46 of the Trade Practices Act and if you do not protect other people in the industry from a potential abuse of power by the oil majors, you have not gone far enough and you do not have a balanced enough system to deal with.

Indeed, given that we have the situation where there is an inequality between franchisees and those people operating on commission—and that is why there is a distinction in the franchisees act that a person who has a direct franchise with an oil major is offered some protection—it is argued quite properly in the brief from the library that there is always a cost to those sorts of arrangements. In doing away with it there will be the potential for greater efficiency within the industry. The oil majors think this is a good thing and they say the introduction of this act is ‘essential to ensure that costly and overly prescriptive regulations are removed and that all participants can compete effectively in the evolving petroleum market.’

As I indicated previously, if you go to those most affected by this change—to the Motor Trades Association of Australia, which represents service station operators—they have a different point of view. The reason they have a different point of view is that, in being released from the constraints of the sites act—officially here when this legislation goes through both chambers but unofficially because it has already been done away with by regulation—the oil majors will be able to pick and choose which sites they operate. So franchisees can expect that they will be on the receiving end of a notification. But, having had the franchise, they will not be continuing that because it is going to be taken back by those oil majors. Indeed, I understand from the member for Hunter that in this regard a number of BP service stations—in fact, the majority—have had their franchise agreements terminated. They were not renewed. So the expectation is that BP and others, as oil majors, will make the choice of the best sites for themselves. Those franchisees will lose out. They will be run directly by those oil companies. What is left will be the sites that are not so good, the sites that are second-rung, third-rung or lower. It will be harder for people to make a living. So the people on the receiving end of this say that they are ‘extremely disappointed that the government has introduced legislation.’ They say:

Service station operators believe that the proposed code is defective because it will not ensure a level playing field that will allow small service station operators to be able to compete fairly in the market with the large supermarkets and oil companies.

I will quote this in full because I think it is the most substantial argument that has been put forward. They further argue:

The outcome of the Government’s proposed changes will be:

• the closure of more small franchised and independent retail outlets—meaning in rural and regional areas, in particular, motorists will have to drive longer distances to obtain fuel;
• increased dominance of the retail petroleum market by the two supermarket chains;
• loss of competition in the retail and in the wholesale market as independent importers will struggle to find sufficient retail outlets necessary to sustain a viable import business; and
• detrimental to motorists in the longer term as smaller competitors exit the market and the large chains gain a greater share of the retail petrol market leading to less price competition.

Finally, they say:

Service station operators wonder where the benefits to motorists and the Government are in these proposed reforms. The only winners here would seem to be the oil majors and the two supermarket chains.

You could argue that, for those who face the brunt of this change, where it is perceived that there has been so much change since 1980, particularly in the last decade, this legislation simply endorses the fact that there has been that change and that the efficiencies sought will be at the expense of those people who have tried long and hard.

In my electorate of Blaxland, a large number of people operate independent retail outlets. Some people work on a commission basis, some as franchisees. Given the difficulties previously with regard to ethanol, one of the operators in my electorate who had an independent oil operation was forced to go to BP and take up a concession with BP. They will now be in a position where they will not know where they will stand—whether BP will stand by their current arrangement or whether they will be forced again to face a great deal of loss as a result of changes made. Bankstown is a very important part of the distribution service because the Hume Highway, Canterbury Road and Milperra Road run right through it. Particularly up the Hume Highway, there is some of the cheapest discounted petrol in Sydney. If you compare it to a range of other areas in Sydney, the people who operate those service stations will come under a great deal of pressure as a result of this.

Likewise, the Chief Executive Officer of the Service Station Association Ltd, Mr Ron Bowden, said that he expects 1,000 to 1,500 service stations will close, another 200 franchisees will probably leave the industry in the next two years and the market power will be left in the hands of a few large companies, which could lead to higher prices. There could be other deleterious effects. Looking at the broad scheme, something that was mooted in 1998 has now come to pass, not because of the franchisees or the independent contractors or those on a commission arrangement—they are not the ones who have driven this—but because of the oil majors and the fact that the supermarket chains have moved into it. Given the government’s determination to carry forward with this, Labor in this situation, as announced by the member for Hunter in April 2006, said:

Labor supports the repeal of the antiquated Petroleum Sites and Franchise Acts but wants both the proposed Oilcode and section 46 of the Trade Practices Act strengthened as part of the package.

You cannot have one without the other. Currently the government is giving us one without the other. They are giving us the change without any of the protection needed for those smaller operators. It may be more efficient and maybe the distortions are taken out of it but the end result will be fewer people independently owning those petrol stations and fewer people able to make a viable living out of it. It may well be, as has been indicated, that you end up with higher prices in the end because competition will be dramatically reduced as the oil majors and the major supermarket chains constrain what happens. Having driven so many independent operators out over many decades—down to 7,000 or so now and being driven down to another 1,000 to 1,500 or possibly more—that leaves one to think that it could be a lot worse.

I just want to speak briefly at the end of this speech about the amendments that Labor has put forward. The series of amendments are very far reaching, and I wish to congratulate the shadow minister and the team that has worked on them. What this demonstrates is that the government have taken eight years to get to this point to say that they recognise there has been a great deal of change in the industry, that they will simply move to put the oil majors back in the position they were in prior to 1980, that they recognise that there are two new entrants—Coles and Woolworths—and that there will be a consolidation of the industry but they will not move to put in any protection under section 46. Labor’s amendments are extremely far reaching. They are far reaching because Labor understands that the whole question of fuel availability in Australia goes to whether or not you understand Australia’s industrial needs, whether or not you understand our needs in terms of resource exploitation and whether or not you have a commitment to take the enormous riches that Australia has and actually direct them towards the benefit of the country in a proper way. So we call on the government to report to parliament annually on measures taken and the progress made to:

(a)

increase market penetration of ethanol and biodiesel, LPG and CNG, including the number and location of service stations and the names of the companies offering these products on their retail sites;

(b)

secure new investment in biofuel, LPG and CNG production and supply infrastructure in Australia; and

(c)

secure investment in new alternative transport fuel industries in Australia, including gas and coal to liquids;

We saw today the Prime Minister, under immense pressure, come up with a statement in relation to energy and fuels. He gave a nod to what we have been pushing for with regard to LPG conversion and said that the government is now willing to undertake that. He said that he would have a look at Labor’s proposals for gas to liquids, but I could not really see much enthusiasm with regard to that. We argue very strongly—and there is a fundamental nationalistic approach at the very basis of this—that we have great resources that could make us more independent of the vagaries of world pricing in relation to petroleum products. We could develop our own resources and therefore not be on the end of the string of supply coming from overseas, which, as we know, can be interrupted in part, not only because of the problems in Iraq with the ongoing war and what we face in terms of the dissolution of that country into three separate entities and because of the problems we face in relation to the situation with Iran—one of the major oil producers in the world—but also because of the uncertainties throughout the whole of the Middle East because of the problems that not only are evident there now but also will continue to bedevil relations in those areas and put a giant question mark over the availability of petroleum worldwide.

We think it is in our national interest to develop our own capacities, to really go hard in terms of alternative fuels, to go hard in terms of gas to liquids and to go hard in taking an Australian approach to secure ourselves against the vagaries of world supply and to secure ourselves from being in a position where we cannot be sure that we can sustain ourselves properly in a world that is changing greatly. So, while the government has taken eight years to get to this point, there is an enormous amount of work to be done. The complexity of the amendments we have put indicate how much thought has gone into Labor’s approach to this. We see clearly what needs to be done and what has not been done by a government that really does not understand that you need to grapple with these things and put a proper plan in place. (Time expired)

See this speech in context