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Select Committee on Petroleum Products Pricing in Western Australia
Getting A Fair Deal for Western Australian Motorists
No of Pages:
State Law Publisher - Perth Western Australia
Click here to view the report
This Committee has embarked on the first review of petroleum pricing in Western Australia for seventeen years. It did this against a backdrop of increasing world prices, high retail prices in the country and a high level of consumer frustration with a highly volatile metropolitan market with frequent and unexplained price fluctuations.
The paradox of rising prices in their towns and the constant news reports of price wars in the city confounded country motorists.
Whilst the inquiry was of a short-term nature it has been a most comprehensive examination of a complex industry. Approximately 90% of the 1.85 billion litres of fuel sold in the state is processed through the BP refinery at Kwinana. The 848 retail sites are operated under a variety of arrangements, as are the distribution and marketing mechanisms.
Major international oil companies dominate all levels of the industry. Commercial information is extremely sensitive and the relevant parties that make up the industry all hold and express very strong views on the future for the industry.
Many of the retail outlets in the metropolitan area, particularly those operated under franchise arrangements with the oil companies, receive price support payments and discounts. These can range between 2 and 8 cents per litre. These schemes were not generally available to country retailers and this is one of the major reasons for the difference between city and country prices.
World oil prices strongly influence the price of petroleum products in Western Australia. The world oil market is not a market that is free from interference and distortions. The recent United States interventions in the market and the ongoing OPEC manipulations are clear demonstrations of this.
Published reports from the oil companies and evidence submitted to the Committee make it clear that the windfall gain from high oil prices is benefiting the oil companies.
The Commonwealth Government excise and GST are the subject of major findings and recommendations in the report. The Committee was interested to note that in October 1990, high fuel costs resulting from the Gulf War would produce a retail price of approximately 84cpl rather than the 98 cpl if the federal Excise and GST remained at those 1990 levels.
The Commonwealth government increased excise by 1.7 cpl during the transition to the GST. The report clearly demonstrates the way that the GST is applied on fuel is inequitable to country residents and has a greater impact there.
The Committee made some significant findings that indicate:
The impact of high fuel prices is greater in the country than the city.
The gap between country and city fuel prices has widened since deregulation in 1993.
The major oil companies dictate and manipulate retail prices at franchisee sites.
The way GST is applied on fuel discriminates against country consumers.
· Retail competition has been limited to the city.
Freight is not a major factor in the price differential between city and country prices.
Oil companies do not generally discount in the country areas of the State.
Oil companies do not offer price support in the country areas of the State.
Oil companies have made windfall gains from world parity pricing.
The Committee is of the view that genuine competition will provide the long-term pressures to ensure the lowest possible prices. For a variety of reasons explained in the report, this is not able to occur at the moment and accordingly the Committee recommends:
· The immediate introduction of price control in country WA.
· The rejection of the CPI linked indexation increase due in February 2001.
· The lowest transparent retail prices through the introduction of genuine, healthy competition.
· Less frequent fluctuations in metropolitan fuel prices.
· The introduction of a maximum wholesale price for petroleum products in Western Australia.
· Greater market power for retailers by allowing stock purchases from a variety of sources.
· A comprehensive price monitoring system.
· Introduction of price control legislation for LPG.
· Review of the Commonwealth Fuel Sales Grant Scheme.
· The windfall tax gains in Government Revenue to be returned to motorists.
· Recommends a rebate on diesel for remote area power generators.
· Subsidisation of LPG powered vehicles.
· Conversion of a major part of the Government Car Fleet to LPG.
· The introduction of a bottled gas scheme subsidy for seniors.
It was found that the petroleum market is not characterised by healthy competition at all levels. Genuine competition at both wholesale and retail levels should deliver the lowest possible prices for the future. To achieve this the Committee recommended that a true Terminal Gate Pricing system be introduced at the wholesale level.
The True Terminal Gate Price would be set daily taking into account the levels of discounts and rebates in the market place. It would be available to all purchasers on similar terms. The effect of this recommendation is that country consumers would receive the benefits of the same rebates and discounts that are traditionally offered in the city.
Importantly, the Committee considers that the State should request that the Commonwealth conduct a review of world parity pricing and supply arrangements.
The Committee recommends that the State Government should stimulate the LPG market and pursue the use of alternative fuels, especially CNG and LNG. It is also acknowledged that the State has vast resources of natural gas and sufficient supplies should be hypothecated to domestic consumption. Applicable legislation should be introduced and price should be based on actual costs and reasonable profit margins.
A complete summary of the findings and recommendations is included in this report.
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