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New Zealand Government Orders Inquiry Into Fuel Pricing By Oil Cos

UPDATE: New Zealand Government Orders Inquiry Into Fuel Pricing By Oil Cos

Dow Jones

(Adds details, comments from oil companies)

By Rebecca Howard


WELLINGTON -(Dow Jones)- The New Zealand government said Monday it has ordered an independent inquiry into the pricing structures used by oil companies against a backdrop of rising gasoline and diesel costs.

Oil companies, however, said the public should not expect the inquiry to lead to lower pump prices as the cost of fuel is subject to international fluctuations in crude oil.

Commerce Minister Lianne Dalziel said in a statement that the Ministry of Economic Development has engaged independent consultants Hale and Twomey to ” review and analyze petrol pricing.”

The announcement comes after gasoline and diesel prices jumped around 5% a liter last week following a surge in international crude oil prices to fresh record highs. Fuel prices in New Zealand have risen more than 20% over the past seven months.

The government is coming under increasing pressure to take action as household spending is squeezed by high interest rates and rising food and fuel prices.

Last week, Finance Minister Michael Cullen rejected suggestions from ANZ Bank that the government should cut the excise tax on petrol to help ease pressure on consumers.

Dalziel was quoted by local media as saying she wanted oil companies to explain why it took a long time for price decreases in crude oil to be reflected at New Zealand petrol pumps, and why the companies were so quick to respond to the price increases.

BP New Zealand, the local unit of BP Plc (BP), will cooperate fully with the inquiry, said company spokesperson Diana Stretch.

“Anything that provides more transparency and information to the general public is a good thing,” she said.

Stretch said BP is hoping the study would dispel the myth that fuel prices go up faster than they come down, and warned that the inquiry was unlikely to lead to lower prices at the pump.

“Margins on fuel from a retail perspective are so thin. Once you take into consideration the international cost of the product and government taxes, everything else is at the margin,” she said.

Shell New Zealand, the local unit of Royal Dutch Shell Plc (RDSA), took a similar tack.

Retail general manager Mark Forsyth said in a statement that while Shell New Zealand recognizes that customers are concerned and affected by the price of fuel, the company “is subject to market fluctuations in price and supply.”

The consultants carrying out the study will look at work carried out by the Australian Competition and Consumer Commission, and consider implications for the New Zealand market, Dalziel said in the statement.

Late last year, the Australian government asked the commission to formally monitor prices of unleaded gasoline after an ACCC inquiry into “Petrol Prices and Australian Consumers,” which highlighted fundamental structural issues that raised concerns about current operations and the future competitiveness of the industry.

In New Zealand, the study will focus on commercial aspects and will make recommendations as to any areas that may require further investigation, said Dalziel.

The local market is dominated by global oil firms Exxon Mobil Corp. (XOM), Shell New Zealand, BP New Zealand and Caltex New Zealand, the local subsidiary of Chevron Corp. (CVX).

The report is expected to be completed by the end of July.

Dalziel said she recognized that local fuel prices are set in response to international market prices, but added that “regulators can always work to ensure issues at the domestic level, such as the competitive dynamics of the market and consumer knowledge, are as strong as they could be.”

– By Rebecca Howard, Dow Jones Newswires; 64-4-471-5990; [email protected]

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  06-16-08 0049ET
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