Andrew Murray (WA, Australian Democrats) Share this | Hansard source

I rise to speak to the Petroleum Retail Legislation Repeal Bill 2006. The petroleum industry in total—exploration, production, manufacturing, wholesaling and retailing—is an industry where there are major barriers to entry and exit. Barriers to entry range from the extraordinary investment and expertise required at the exploration, production and manufacturing end to the planning difficulties surrounding retail siting. Barriers to exit particularly apply at the retail end, where franchise contracts and a shrinking service station sector have often made a profitable exit difficult. It is an industry which has always been characterised by the dominance of the transnational majors, which have always striven to maintain their captaincy of every level of the supply chain to the customer. Consequently, until recently the petroleum industry has not seen the emergence of strong countervailing contenders for captaincy of, for instance, the wholesale channel or the retail channel. The supermarket chains in Australia have now challenged this.

It is the Australian Democrats’ view that the industry still exhibits fatal flaws which materially affect investment, profitability, pricing and competition. These flaws include the oligopolisation of supply, difficulties of access and a heavy concentration of direct and indirect market power in the majors at every level in the chain of supply. Much attention has rightly been paid by concerned groups to pricing, access, supply issues, restrictive practices and market manipulation. Market power, horizontal concentration, vertical integration, ties and so on affect pricing. Those market flaws also affect profitability and the return on capital, because those with power are able to materially influence and affect where profits are made and taken. For all of these reasons market regulation has been and remains essential. That it has only partially succeeded does not mean that it is time to give up on regulation. If we are to envisage an industry with much enhanced pricing and competition and better profitability prospects, we do need to continue to attend to the structures, behaviour and conduct of the industry at every level.

The purpose of the Petroleum Retail Legislation Repeal Bill 2006 is to repeal the Petroleum Retail Marketing Franchise Act 1980 and the Petroleum Retail Marketing Sites Act 1980, and to make a consequential amendment to the Jurisdiction of Courts (Cross-Vesting) Act 1987. The government proposes to replace the two petroleum retail acts with a mandatory industry code, to be known as the Trade Practices (Industry Codes—Oilcode) Regulations under section 51AE of the Trade Practices Act 1974. This particular bill has been floating around since the late 1990s with no success. One reason for this is that the different sectors of the industry could not agree on the content of the proposed Oilcode. For decades the Democrats have argued that a strong small business sector is essential to the economic and social health of Australia and that small business has a value of itself. Our views on the Petroleum Retail Legislation Repeal Bill 2006 are necessarily coloured by that perspective. We strongly support the workings of a free and fair market, as evidenced by our work on corporations, trade practices and tax law, but we have long been concerned that a weak Trade Practices Act does not deliver sufficiently fair competition for small business with sufficiently adequate protections from predatory pricing and the abuse of market power.

In 2004 the government’s intention to proceed with the proposed reform was announced and a bill in almost the same terms as the 1998 bill was introduced. In August 2005 a revised Oilcode was sent to stakeholders. It met with a contrary reaction, similar to past efforts, from interested groups. We agree that the new regulations are likely to offer significant improvements in transparency in the wholesale pricing of fuel and allow access for small businesses to the terminal gate price. However, differential pricing will still apply based on volumes as the market dictates. That is, a large chain such as the Coles Myer controlled Shell franchises can be expected to receive a superior price to an independent since they are likely to purchase a far greater volume. This could lead to an increase in the concentration of industry participants and a commensurate reduction in outlet choice for consumers. We are concerned that the result will be a significant reduction in the number of independent franchisees and small business operators, except perhaps in less economical or uneconomical regional and rural sites.

The Motor Trades Association of Australia, the Service Station Association and others had concerns about the impact of the legislation and the Oilcode on independent retailers. The MTAA argued that it would be important for an effective regulatory framework to be in place to deal with issues relating to the misuse of market power, and that the Trade Practices Act needs to be strengthened.

The Petroleum Retail Marketing Franchise Act 1980 and the Petroleum Retail Marketing Sites Act 1980 were passed to address an imbalance in market power at that time between the oil refiners and marketers—namely, BP, Caltex, Mobil and Shell and their commission agents. It was strongly asserted that the major companies had abused their market power. However, as the petroleum retail market has developed since that time, the consequence of these two acts has been the creation of a two-tier system, as the acts apply to only part of the industry. The acts have not prevented the growth of retailing outside the acts’ ambit—most notably through the entry of supermarket chains and independent importers and marketers into the industry—nor have they prevented the demise of thousands of independents.

The 1980 acts, contrary to their original intention, now restrain competition and limit the ability of the retail arms owned and franchised by major oil companies to compete with supermarket chain retailers operating outside of the ambit of the two acts. That is why there is again an agitation for those acts to be repealed. However, that should not occur without a recognition that this would deliver more big company competition for the four oil majors and the two big supermarket chains but leave independents and other small chains still, and perhaps more, exposed to predatory behaviour. Therefore, repeal of these acts should be accompanied by an Oilcode that supports full competition, not oligopoly, and a strengthened Trade Practices Act that better protects competition by independent small business. The problems are not new. The Australian Democrats pointed this out in their Senate Rural and Regional Affairs and Transport Legislation Committee minority report in 1999. It said:

5.1 The issues for the petroleum industry are vertical and horizontal integration, open access to terminals and protection of the rights of individual operators. The correct mix of regulation of each of these areas should result in increased competition and profitability, and better pricing practices. It would also result in a beneficial end to the market dominance of the oil majors in the wholesale and retail sectors.

The Australian Democrats agree that an appropriate access regime should be implemented and is needed. We agreed with the majority recommendation in the 1999 report that the franchise act should be retained until the completion and tabling of the Oilcode as regulation pursuant to part IVB of the Trade Practices Act. Further, we recommended that there should be a parliamentary review of the access regime after 18 months of operation of the Oilcode. That is plainly going to be necessary with respect to the new Oilcode. The petroleum industry is understandably desperate for there to be resolution of this legislative block so that it can forward plan in what is a very volatile and ever-changing market. The Democrats understand this and sympathise with that position. However, the government does not accept that the petroleum market should be assessed together with general trade practices protection.

The government presents this bill in isolation, as though the petroleum industry were not part of a bigger retailing or national picture and strengthening amendments to the Trade Practices Act were irrelevant to the matter under discussion here today. The Australian Democrats do not agree. As evidenced by the Labor Party’s attempt at amendments in the House of Representatives, they also do not agree. The Trade Practices Act deals with broad competition issues and it needs strengthening to provide a proper safe harbour for all small businesses, not just those occurring within the petroleum industry. Consumers, experts and business see the ACCC as having a pivotal role in the petrol industry regarding pricing, collusion and abuse of market power. Elsewhere I have said that the ACCC should have an enhanced capacity to get behind the corporate veil in that respect. I have been criticised in this chamber for suggesting that they might do well to have some ASIC-like powers with respect to that, but I continue to hold that position.

The Democrats have tried to persuade the government to not deal with petroleum issues in isolation from the whole question of competition law, but they have proven unwilling to listen. The government’s position is incomprehensibly stubborn. Also, when you think of all the changes to regulation that they have made in Corporations Law and with respect to financial services reform, it is extraordinary that the one area in which they have been obdurate, slow, resistant and negative in terms of change has been trade practices law. It is the one area in which they are excessively obeisant to big business.

The government’s position is that they want this bill passed first, unchanged. Separately and later, they want the Dawson bill passed, unchanged. After that, they might deign to pass a weak small business trade practices bill, unchanged. The height of hubris is to believe that all wisdom is yours. This is not macho and it is not even a sign of strong character; it is just silly. All these matters should be sensibly resolved together. Issues of dispute, like the government’s anti-union and anti-choice clause in the Dawson bill that prohibits unions from bargaining for business, should just be laid aside for another day.

Let me remind the Senate about matters relating to this bill which have occurred in the last 12 months. To his great credit as a member of the government coalition and under considerable pressure, Senator Joyce has had the gumption to vote on conscience on these matters. His opposition to schedule 1 of the Trade Practices Legislation Amendment Bill (No. 1) 2005 plus the opposition of all non-government parties to the whole bill on 11 October 2005 have meant that the amended bill has stalled in the House of Representatives. Nothing would have stopped it being passed and dealt with long ago. Senator Joyce’s motion to disallow the Petroleum Retail Marketing Sites Amendment Regulations 2006 (No. l) on 15 June 2006 was supported by the non-government parties but failed on a tied vote.

The Democrats opposed the Trade Practices Legislation Amendment Bill (No. 1) 2005 principally because we wanted this bill to be balanced with trade practices reforms for small business. We opposed the anti-union clause in this bill, the third-line forcing provisions and the changes to the relationship between the tribunal and the commission which would encourage forum shopping. The Democrats opposed the Petroleum Retail Marketing Sites Amendment Regulations 2006 (No. l) because we wanted the regulations to be balanced with trade practices reforms for small business and because the enabling legislation had not even been passed.

The Democrats have a particular interest in the passage of many of the recommendations of the majority—and even the minority, which we support—Senate Economics References Committee report of March 2004 on the effectiveness of the Trade Practices Act 1974 in protecting small business. If the 17 recommendations that cover the misuse of market power, unconscionable conduct, collective bargaining, creeping acquisitions, divestiture and the powers and resources of the Australian Competition and Consumer Commission were implemented, then fair and free competition would be greatly strengthened in Australia. Further, there would be less of a case for industry-specific regulation if the general law were so strengthened. Small business strongly support those recommendations overall.

The Democrats would not oppose the Petroleum Retail Legislation Repeal Bill 2006 or the Petroleum Retail Marketing Sites Amendment Regulations 2006 (No. 1), which of course have passed, if at least those trade practices recommendations popularly described as the Brandis amendments—from Senator Brandis’s minority report of the Senate Economics References Committee on the Trade Practices Act, in March 2004—and those already accepted by the government in its response to the Senate report were passed into law.

The Democrats would not oppose the Trade Practices Legislation Amendment Bill (No. 1) 2005 if at least those recommendations by Senator Brandis’s minority report and those already accepted by the government in its response to the Senate report were passed into law. We would not oppose it if the anti-union clause in the bill were dropped. The third-line forcing provisions have already been dropped, thanks to the good work of The Nationals in pressuring the Treasurer, but we would have to consider our position on the changes to the relationship between the tribunal and the commission which will encourage forum shopping.

The anti-union clause, by the way, was not part of the Dawson recommendations. It is not about creating a more effective Trade Practices Act; it is simply a clause that was inserted to anger and upset the Labor Party. Small business owners should be able to have unions negotiate on their behalf, as should workers. This provision is simply a political stunt to try and curtail what the government believes is union power, as the underlying backbone of the Labor Party. It should be recognised by industry that it is this trade practices intransigence by the government which is stymieing passage of this petroleum legislation, not the lack of cooperation of other parties.

Schedule 1 of the Trade Practices Legislation Amendment Bill (No. 1) 2005, which Senator Joyce voted against last year, contains a voluntary form of merger clearance system that can operate in conjunction with the existing informal ACCC system. Under the current system, an unfavourable decision in the ACCC is reviewed by the Australian Competition Tribunal. The new formal system, which means that merging parties can go directly to the tribunal, could have the effect of reducing the power of the ACCC and result in forum shopping between the ACCC and the Australian Competition Tribunal. It is also relatively unnecessary, because there is no sign that the ACCC has been failing to properly police acquisitions and mergers. The real issue of course is that there are no divestiture provisions. Senator Joyce’s main concern with the schedule was that mergers would be sanctioned under a different reasoning and would impact heavily on small business. His main concern was about what constituted public benefit. If I were the government and had to deal with Senator Joyce, I would make sure I recognised that he was expressing legitimate concerns which were widely shared in both the political community and the industry community.

The Senate Economics Reference Committee report of March 2004, The effectiveness of the Trade Practices Act 1974 in protecting small business, contained 17 recommendations that cover the misuse of market power, unconscionable conduct, collective bargaining, creeping acquisitions, divestiture and the powers and resources of the ACCC. The government did not accept nine recommendations; it accepted five in full and accepted three in part. Those recommendations having been accepted, they have consulted with the states but are just sitting on their hands and not introducing those in conjunction with this bill.

The Senate Economics References Committee unanimously recommended changes to strengthen section 46 on misuse of market power. Those amendments will strengthen the courts’ powers to rule where big business is unfairly using its market power and conducting predatory pricing to eliminate a competitor. These are important issues for small business. They are important issues with respect to this legislative change that is before us. But the government has not presented those amendments to the Trade Practices Act since the committee report was tabled, even though they accepted the recommendations. In that report, the government recognised the importance of small business to the vigour of the Australian economy and the contribution that small business makes to the growth in employment and innovation. If you think that way, match your words with action!

To recap, what is holding up the Trade Practices Legislation Amendment Bill (No. 1) 2005 and the Petroleum Retail Legislation Repeal Bill 2006—and listeners will note that during my remarks I have continually linked these together—is the government implementing those Senate recommendations that are relevant to the Trade Practices Act, recommendations that they accepted in their response and which are part of the Brandis package. It is necessary that the government drop, in its entirety, the outlawing of collective bargaining in the Trade Practices Legislation Amendment Bill (No. 1) 2005. The two bills that I have referred to and the new trade practices bill, with regard to the needs of small business, need to be dealt with cognately or in the same week.

The government also needs to implement the single, unanimous trade practices recommendation in the October 2005 report of the Senate Rural and Regional Affairs and Transport References Committee, Operation of the wine-making industry, which recommended that the government should give priority to amending the Trade Practices Act 1974 to add unilateral variation clauses in contracts to the list of matters which a court may have regard to in deciding whether conduct is unconscionable.

Those are amendments the government will accept. They apply to the wine industry as much as they apply to the petrol industry. But the government simply will not move. They are obdurate and difficult, and their behaviour I think is contrary to the public interest. Just by the way, in view of the current problems, in that Senate Rural and Regional Affairs and Transport References report the committee supported a mandatory code of conduct under the Trade Practices Act to regulate the sale of wine grapes.

The Democrats strongly support the workings of a free and fair market. We have long been concerned that a weak Trade Practices Act does not deliver sufficient fair competition for small business with sufficiently adequate protections from predatory pricing and the abuse of market power. Everyone needs to understand that a weak Trade Practices Act in Australia compares badly with many overseas laws. In that respect, we set great store on recommendations in the Senate Economics References Committee majority report, which we supported. We hope when Labor get into power that will be amongst the first bills they introduce to address competition needs in this country. There would be less of a case if that happened—if the general law was so strengthened—for industry-specific regulation in any industry.