The competition watchdog has launched a probe into Viva Energy’s move to extend its reach into regional fuel wholesaling, querying whether its $42 million buyout of Liberty Oil could push up fuel prices.
Viva already supplies about a quarter of the fuel sold across the country, through its Geelong refinery, network of import terminals and more than 1250 service stations scattered across the country, including Coles Express-branded fuel and convenience stores.
It picked up a half-interest in Liberty in 2014, at the same time as it acquired Royal Dutch Shell’s Australian downstream business, and said in February it had struck a deal to pay $42m to add Liberty’s regional wholesale operations — 17 regional storage depots and a 50-strong tanker fleet that supplies more than 250 service stations — to its wholesaling arm.
It followed a move by the supplier and retailer earlier that month to rejig a decade-long deal with Coles, giving it control over setting fuel prices at the supermarket giant’s branded fuel and convenience outlets, aiming to resurrect the petrol unit, consistently identified by the Australian Competition & Consumer Council as the highest-priced vendor in the country.
Last year it snapped up a half-interest in fuel retailer Westside, extending its presence to another 50 service stations across NSW, Victoria and Queensland.
Viva branded the moves, along with a discounting deal with Carsales, as a means to improve its competitiveness at the pump.
But the ACCC launched a consultation on the proposed buyout late last week, asking motorists, retailers, and Viva’s wholesale competitors whether they believed the deal could instead help push up prices.
“The ACCC’s investigation is focused on the impact on competition. In particular, we are seeking your views on whether the proposed acquisition will lead to higher retail fuel prices, how closely Liberty competes with Viva (including Coles Express or Westside sites) in retail supply of fuel, both in local areas and across metropolitan areas, and whether other fuel retailers will competitively constrain Viva after the proposed acquisition,” the ACCC said.
The competition watchdog said it would also examine whether the buyout was “likely to enable Viva to increase the prices it charges to wholesale customers or offer less favourable terms of supply”.
Under the deal Liberty’s 50 retail fuel outlets would be spun out into a separate company, with Viva retaining a half-share.
A spokeswoman for Viva said it would work with the ACCC on any issues that arose during its review. “Viva Energy notes the ACCC’s public consultation process in respect of its proposed transaction to acquire the Liberty wholesale business. Viva Energy notes that this is a consultation process only. Viva Energy will continue to work with the ACCC to address any issues, should they arise,” she said.
Viva was formed when Swiss-commodity trader Vitol bought Shell’s network of service stations and the Geelong refinery in early 2014. The deal cost Coles dearly, as Viva charged more than Shell for its wholesale fuel and the Coles Express chain lost market share — once as high as 25 per cent — as it passed on the cost to motorists, who then avoided its outlets.
Wesfarmers boss Rob Scott — then still in charge of Coles — estimated last year its fuel volumes had fallen 28 per cent since Viva took over as its wholesaler, from about 90 million litres a week to 65 million.
Under the revised deal, Viva took control of the pump price at Coles Express outlets, paying the supermarket giant a commission on each litre of fuel sold.
The revised deal cost Viva $137m in a one-off payment.
According to its February annual financial accounts — its first since listing on the ASX in a $4.9 billion float last July — the company booked an underlying after-tax profit of $227.5m on revenue of $16.4bn in 2018.
Extracted from The Australian