THE PRESS WEDNESDAY, FEBRUARY 9, 1983. The price of petrol

Press, 9 February 1983, Page 22

THE PRESS WEDNESDAY, FEBRUARY 9, 1983. The price of petrol

Earlier generations of New Zealand politicians were concerned, and some would say obsessed, to hold down the price of bread. Today's politicians are much more wary of allowing the price of petrol to rise, well aware that petrol is a larger item than bread in most household budgets. During the present freeze on prices and wages the Government must be even more reluctant to approve an increase in petrol prices, although the recovery of increased import prices has been one of the principal grounds for approved price rises since the freeze was imposed last June. The retail price of petrol in New Zealand is controlled by the Government under an arrangement with the oil companies and the New Zealand Refinery Company. This arrangement allows importers, the refinery, wholesalers, and retailers negotiated margins of profit for their services. To avoid frequent changes in prices that would result from short-term fluctuations in import prices or exchange rates, an industry pool records overs and unders due to, or due from, the oil companies from time to time. The pool’s transactions are not made public. It is still common knowledge that a deficit of some millions of dollars has been incurred since the most recent negotiated price rise last June. The subsequent addition of 3 cents a litre to the retail price announced in the Budget comprised an addition to motor spirits duty. The official O.P.E.C. price for oil has not changed from ?US34 a barrel since before June last year; but spot prices and negotiated prices have fluctuated round this figure. Average prices paid by O.P.E.C. customers in recent months have probably been less than SUS 34. Since last April which was the latest month taken into account when the June increase in the New Zealand price of petrol took effect, the United States dollar has risen from SNZI.3I to SNZI.4I. This increase, equivalent to more than 1.5 cents a litre, must have more than offset any drop in the prices negotiated for crude oil imported for the New Zealand refinery. A drop of SUSI a barrel represents less than 1 cent a litre of crude oil.

Even so, the Government will no doubt postpone, until after the O.P.E.C. meeting, any decision on local prices for motor spirits and other oil products. The Government has a further reason for delay in the pending negotiations with the Federation of Labour on the need to restrain wages after the wage freeze ends. Stalling on the oil companies’ application for a price rise could be mentioned to the federation as evidence of the Government’s determination to hold down prices as well as wages. The Government could make a rod for its own back if it did not also point out at the same time that the Motor Spirits Account must, in due course, be

reimbursed for recent deficits.

Looking beyond the red figures in its current ledger with the oil industry, and beyond the next O.P.E.C. meeting, the Government should be able to take a much longer view of the price of petrol. Petrol has risen from 10.6 cents a litre (48 cents a gallon) in 1973 to 71 cents a litre in 1983. Sound arguments, strategic as well as economic, offer themselves, for planning now to increase the price of petrol more than increases"in New Zealand wages and costs would w’arrant.

If oil-consuming countries are to ensure that the O.P.E.C. cartel can never again halt their economic progress, as it has done in the last decade, they must reduce their dependence on imported oil and encourage the development of local sources of energy. This is the goal to which New Zealand and most other Western countries are committed. Some progress towards this goal has already been made: consumption of all forms of energy, in relation to the Gross Domestic Products of all Western countries, has been reduced in the last 10 years. Economies in the use of petrol and the development of alternative fuels have both been encouraged by the increases in oil prices. When oil prices weaken, as they have done in recent times, Governments in democratic countries are tempted to reduce the real price of petrol; that is, not to increase the retail price in proportion to wages, prices, or devaluation of their own currencies. Whenever they succumb to this temptation they prejudice the long-term goal of keeping out of O.P.E.C.’s clutches. The higher the price of petrol throughout the Western world, the more incentive there is for private enterprise to find and develop other oil fields, and to produce oil substitutes.

A drop of SUS2 to SUS 4 a barrel in the O.P.E.C. benchmark has been talked of. This may not be fully reflected in the landed price of crude oil in New. Zealand. There is no indication of any early weakening of the United States dollar against the New Zealand dollar — rather the reverse. The cost of the extensions to the New Zealand refinery also has yet to be fully reflected in the local prices of petrol and diesel oil. New Zealand’s energy strategy is based on the full development of the Maui and Kapuni gas fields, on the continuing exploration for new deposits, and on the development of oil substitutes such as compressed natural gas and liquefied petroleum gas. The success of this strategy depends on many factors, of which the most important is maintaining the real price of petrol. The question that the Government must soon answer is not whether the price of petrol must be raised, but when and by how much, to secure the country’s greatest possible independence.