The Australian government has withdrawn its proposed downstream petroleum industry deregulation plan, following the failure of the Motor Trades Association of Australia (MTAA) to accept a key element in the package.
The MTAA refuses to agree to a repeal of the Sites Act, which would have allowed major oil companies such as BP Australia Ltd., Caltex Australia Petroleum Pty. Ltd., Mobil Oil Australia Ltd., and Shell Australia Ltd. to compete on equal terms with independent companies marketing petroleum products in Australia. This is despite written notices the majors submitted to the government on the future structure of their businesses.
Unfair advantage
Currently, the Sites Act allows the majors to own and operate only 5% of their retail sites around the country. The remainder are operated through franchisees. Independent retailers, on the other hand, can own and operate as many outlets as they wish.
Jim Starkey, executive director of the industry's downstream association, the Australian Institute of Petroleum, says the MTAA is out of touch with the needs of consumers and with the realities of the service station sector.
He says the reform package followed comprehensive reviews of the petroleum products industry and offered a better deal for all petroleum industry participants, including the small business sector. He added there would have been benefits for consumers through increased industry competition.
Starkey says the majors responded constructively to the concerns of other industry participants by offering substantial concessions, including issues such as service station operators' access to competitively priced fuel.
He added that withdrawal of the reform package means that the majors will remain constrained by outdated and inefficient legislation and will be unable to operate their networks on a sound business basis. It also means that the viability of the majors' franchise networks is now threatened, and the prospect of a better deal for consumers offered by the package has been lost.
Caltex's response
Following the withdrawal of the government reform proposal, Caltex Australia moved to put in place a contingency plan that may result in its complete withdrawal from direct gasoline retail marketing in Australia.
There is speculation that Caltex will opt not to renew the leases of its franchisees at retail sites as they fall due. Most are in the final year of a standard 3-year lease.
Caltex declined to comment on the likely outcome of its operations review but confirmed it has begun to develop an alternative to its franchise network in response to the failure of talks with the MTAA concerning a voluntary code of practice known as Oilcode, a central plank in the deregulation of Australia's downstream petroleum sector. Oilcode, which is backed by trade practices law, would have replaced the Sites Act.
Caltex executives have formed a task force to oversee the new strategy that could lead to the company's 1,300 franchise sites being put up for sale. This would change Caltex from a company holding 31% of Australia's retail outlets to a wholesaler serving stations with independent brands and other retail outlets.
Australia's other three oil majors are also affected by the impasse over deregulation, but Caltex will be affected the most. Unlike the others, it has not yet implemented a multisite franchising system that allows one operator to control a number of sites.
