PRICE OF PETROL

Rotorua Morning Post, Volume 1, Issue 51, 22 October 1931, Page 3

PRICE OF PETROL

("post" Special Commissioner)

defartmental reort COMPANIES' ACCOUNTS MAKE INVESTIGATION DIFFICULT COSTS NOT READILY VERIFIED

WELLINGTON, Wednesday. The results of the investigations by the Department of Industries and Commerce, recently ordered by the Prime Minister, into the purchase price overseas of motor spirit and the expenses incurred in importing and distributing it through the present marketing channels in New Zealand were subihitted to Parliament to-day in a special report. The Department found that the accounts kept by the companies did not readily lend themselves to the extraction of the information necessarily reauired by the Department in making its investigation. Owing to finaneial interlocking of the producing and refining oil interest, it was difficult to verify the f.o.b. costs shown on the companies' invoices. There were, however, indications that the prices were fixed by. the exporting organisations at a rate in excess of the market price at the date of shipment. To what extent the invoice prices were justified, having in view the cost of production and refining, was a matter on which the Department could not, with the information available, express any definite opinion. The marked spread between the C.I.F. and E. and duty paid cost and the ultixnate selling price, the Department reported, is due to the following circumstances : Causes of "Spread" (a) Competition for business between the oil companies and the resultant overcapitalisation of the system of distribution, exemplified by excessive terminal and other tank storage accommodation and an excess number of pumps and other distributing plant. (b) An excessive number of retail distributors. (c) Heavy provision for depreciation. This is common to all the major oil companies. The object of the policy adopted appears to be to write down the capital assets of companies as rapidly as possible. (d) Extensive advertising conducted on scale which, it is suggested, is a distinct burden in view of the constant demand for the commodity, which probably does not vary in quality to any appreciable degree as between comparable products handled

by each competitive unit. The major oil companies act in agreement in regard to wholesale selling prices and terms of sale and while there is keen competition for trade, there appears to be no wholesale competition on price as between the major oil companies. The main point of importanee is the fact that the prices fixed by general agreement between the companies are,presumably, reasonably satisfactory to each and every company, irrespective of the proportion of the total requirements of the market secured by* it. Better Control Desirable The investigation has drawn attention to the desirahility of some statutory obligation on foi*eign-owned and controlled companies to keep adequate records that will readily disclose the finaneial results of the trading operations of such companies in New Zealand. "The results of the investigations showed that the spread between landed duty — paid cost and the final cost to user is mainly absorbed in distribution expenses on the part of the major oil companies," ' the report stated. A substantial proportion was absorbed in overhead and general office expenses and it was these heavy expenses which in a large measure had made possible the operations of the independent oil importers. At the : same time, it must be recognised in any comparison that the major oil companies provided a distribution service over th ewhole of the Domin- ; ion. The fundamental advantages of bulk importation appeared to a con- ; siderable degree to have been lost by i the heavy costs of internal distri- | bution, due in the main to a competi- | tive oversupply of distributive facilities and organisation. The Ddpartment pointg out that there had been a recent reduction of Id per gallon in wholesale selling prices, due essentially, no doubt, to reductions in values at points of origin. The present overseas cost now represented only a small proportion of the total duty — paid cost to the retail distributors. The Department stated that the margin at present generally available between the wholesale price to retailers and the price to the publie was not eonsidered excessive. The necessity for this margin, however, was materially affected by the quantities handled. The present nominal margin between wholesale and retail prices was, iix the main centres, approximately ls 3d per gallon.