In today's email we round up the latest regulatory and economic news.
1. The Gull effect
Energy and Resources Minister Judith Collins released the Fuel Market Financial Performance Study yesterday, which recommended more research into a market it said may not be producing reasonable prices.
The study effectively identified the Gull effect, showing retail fuel profit margins for the public were higher in the South Island and around Wellington, where Gull does not have stations. The chart below shows margins in the non-Gull regions have almost doubled to around 29c per litre since 2013 and are around eight to 10 cents higher than in the upper part of the North Island.
Collins essentially put the remaining big three fuel retailers, Z Energy, BP and Mobil, on notice to get those margins down while the Government considered MBIE's assessment of the study and waved the vague threat of a formal market study by the Commerce Commission.
The report warned against more direct regulatory action and any market study will be a long way off, as the Commerce Act has yet to be changed to give the Commerce Commission that formal power.
Meanwhile, the big retailers have already reacted to the vague threats in the short term by reducing their prices, as Newsroom's Morgan Tait reported first last week.
The short term response from the industry is not new. The same thing happened in early February 2015 when then Energy Minister Simon Bridges wrote to the fuel companies to query them about a rise in margins. There was an initial drop and then margins rose again after publicity around the issue died away.
Collins talked tough during a stand-up news conference before the National caucus meeting in Parliament yesterday.
"The study is pretty clear that people are probably paying a little bit too much for petrol, and each cent of increase in the petrol price across the board is a $30 million wealth transfer from people who buy petrol to those who sell it," she said.
However, the move to ask for an MBIE report into the report by November effectively kicks the issue into touch until after election. Substantial action, including a formal market study, would be years away, given the need for Commerce Act changes.
Z Energy has led pricing in the industry in recent years and has followed a strategy of lifting margins and profits to fund reinvestment in infrastructure and service station upgrades, as well as increasing returns on capital for shareholders. It said in a detailed statement to the stock exchange that it had demonstrated to the study's authors that the industry was more competitive than it had ever been and that Z's returns were reasonable and in line with local and international peers.
However, Z Energy's strategy has been controversial, particularly around its acquisition last year of Caltex stations from Chevron to give it as much as half the market in some areas.
Jill Walker, a former ACCC commissioner who is now a commissioner with our Commerce Commission, issued a dissenting opinion in the Commission's approval (Page 109) of the merger.
"In my view, there is currently evidence of such tacit coordination among petrol retailers which follows a leader-follower pattern," Walker wrote in the dissenting opinion.
"The result is prices that are above what they would otherwise be if more effective competition were taking place. In my view, the evidence from retail fuel markets in New Zealand suggests that tacit coordination has contributed to increased fuel firm margins," she wrote.
See full coverage of the report from Newsroom's Morgan Tait over at Newsroom.
2. Construction confidence slumps
Construction sector confidence slumped in the June quarter despite solid expectations for output and new orders. This adds to indications in the March quarter that building activity is coming off its highs under the weight of capacity constraints and tighter credit availability from banks.
The New Zealand Institute of Economics (NZIER) Quarterly Survey of Business Opinion found a net 18 percent of building industry respondents expected better economic conditions in the next quarter, which was down from a net 31 percent in the March quarter and a high of 36 percent in the September quarter of last year.
Banks have tightened their lending criteria and reduced their lending growth to residential and commercial property developers in the last six months as they hit their limits for cheap local term deposit funding and looked ahead to tougher capital requirements from regulators.
However, a net 33 percent of builders still expected more new orders in the next year, virtually unchanged from 34 percent in the previous quarter, while a net 36 percent improved their actual output in the June quarter, up from 21 percent in the March quarter.
Capacity utilisation in the building sector also softened from a record high 94.6 percent in the March quarter to 93.8 percent in the June quarter.
Elsewhere in the survey, business confidence more generally was broadly steady. A net 18 percent expected an improvement in general business conditions in the next quarter, which was unchanged from the March quarter. A net 23 percent expected their own trading conditions to improve in the next quarter, down only slightly from 25 percent in the previous quarter.
The survey also showed few inflation pressures coming through in the economy, despite businesses reporting problems finding skilled and unskilled staff. A net 24 percent expected to increase their selling prices in the next quarter, down from a net 29 percent in the previous quarter. The closely watched capacity utilisation measure dropped to 92.1 percent from 93.6 percent in the previous quarter.
NZIER Senior Economist Christina Leung said the survey indicated average GDP growth of around three percent in the year ahead and few signs of inflation picking up.
"There are signs that capacity pressures are easing in the New Zealand economy," Leung said.
"There is a little urgency for the Reserve Bank to lift the OCR," she said, adding the NZIER did not see the Reserve Bank lifting the rate until the middle of next year.
3. 'You drive, you pay'
The drive to bring in congestion pricing in Auckland moved one small step closer yesterday.
Newsroom's Tim Murphy reports that Auckland Council agreed to give Mayor Phil Goff and his deputy the power to make political decisions with the Government during a new study into congestion pricing.
The new name for congestion pricing is 'Smarter Transport Pricing' or STP. One thing there is a not a shortage of in the Auckland infrastructure debate is acronyms.
4. NZ failing whistleblowers
Newsroom's National Affairs Editor Shane Cowlishaw has done a major report into the adequacy of New Zealand's rules to protect whistleblowers after the release of a survey.
Led by Professor A J Brown of Queensland’s Griffith University, the Whistle While They Work 2 survey is the first to rank whistleblowing processes across New Zealand and Australia.
Almost 700 organisations across 19 industry groups and public sectors – including 65 New Zealand public agencies and local governments – took part in the research, which was conducted in conjunction with the Ombudsman and Victoria University.
The New Zealand public sector came in at the middle of the pack for the strength of its whistleblowing processes, ranked across five key areas: incident tracking, support strategy, risk assessment, dedicated support, and remediation.
But of the 10 Australasian public sector jurisdictions, New Zealand was near the bottom, ranked eighth with only Tasmania and the Northern Territory behind.
Shane reports it points to a complacent attitude in New Zealand, a country considered relatively corruption-free but far from exempt from problems that need to be exposed.
5. Land of the long line of orange cones
There's a bit of a roading and construction theme in today's email. Newsroom's Alexia Russell has followed up on Prime Minister Bill English's joke in his National Conference speech about buying shares in companies that make orange road cones.
She spoke to Roadsigns & Traffic Control Equipment Ltd, the biggest of the companies selling road cones to traffic management firms.
RTL's business started in Invercargill, where it was once operated by the Ministry of Works. Ironically, if it hadn't been sold off to private enterprise in 1975 it could have been the Government with shares in an orange cone company. RTL now employs 65 people in Auckland, Wellington, Christchurch and Invercargill. Add in Traffitech's staff and that's 140 people all up.
RTL estimates 150,000 to 250,000 cones are sold nation-wide to New Zealand traffic safety management companies a year. They cost between $25 and $35 each.
6. While you were sleeping
North Korea tested a missile late yesterday that it said was an ICBM and that experts said could reach Alaska. North Korea said it could fire its missiles anywhere in the world. (Reuters)
President Donald Trump tweeted almost immediately about the missile launch, asking if Kim Yong Un had nothing better to do. He then seemed to suggest that the United States would take no action, appearing to say it was up to South Korea, Japan and China to react.
"Hard to believe that South Korea and Japan will put up with this much longer. Perhaps China will put a heavy move on North Korea and end this nonsense once and for all!" he tweeted.
7. Coming up...
New Zealand First Leader Winston Peters left his deputy Ron Mark in charge in Parliament yesterday and embarked on a two-week 'Campaign for the Regions' tour. Yesterday he spoke the Autolodge Motor Inn in New Plymouth and at the Whanganui RSA and will stay on the road in provincial New Zealand before arriving in Auckland on July 14.
8. A couple of fun things
The Atlantic's Yoni Appelbaum captured the mood with this tweet after Donald Trump questioned in a tweet whether North Korea's Kim Yong Un had anything better to do after fired another missile into the seas off Japan:
""Does this guy have anything better to do with his life?” he tweeted."
Tim Murphy spotted Parliament's Speaker David Carter on the television yesterday and delivered some sartorial advice via Twitter:
"Can someone please rule the Speaker's shirt-tie-pinstripe suit combo out of order? #nzqt"
US novelist Brad Thor on discovering Chris Christie was reading his book while parked on a beach the Christie had banned others from using:
"I think I'm the only one in America not mad at #ChrisChristie"