Petrol price pressure

As Federal Parliament returned from the winter break last week, some MPs from Coalition held marginal seats took the opportunity to pass on their concerns to their respective party leaders. Others, like Family First’s Steve Fielding, used the opportunity to score some political points by holding a jerry can over their head and calling for the government to take action on petrol prices.

There have been a number of responses to rising petrol prices: some have called for a cut in the petrol excise, or for the GST on petrol to be dumped. Others have called for granting the ACCC stricter powers to investigate alleged anti-competitive behaviour by service stations, or even setting the price of petrol itself. So far the Federal Government’s only major response has been the announcement of an LPG conversion subsidy earlier this week.

Unfortunately, one highly effective option for tackling petrol prices has been overlooked by the Federal Government. Part of the problem with petrol prices arises because of transaction costs in the market for petrol. In basic terms, insufficient information about petrol prices causes motorists to spend more on petrol then they have to.

Take this example, how many times have you been driving along, looked at your petrol meter and noticed that you are starting to run low. You pass one service station, look at the price, and then drive along to next one and pull in there because the price is a bit less. You fill up, drive away, turn a corner and kick yourself when you see another service station where the price is even less.

While price differences between service stations are generally not huge, they can vary by as much as 10 cents a litre. At a time when the price seems to get higher everyday, every cent counts and such savings would definitely be welcomed by motorists. It is in this situation that there is scope for government action.

By providing information to drivers about petrol prices, and by regulating intra-day price fluctuations in petrol prices, government can help motorists save money at the pump. This is exactly what the Western Australian Government did when it introduced FuelWatch. FuelWatch is basically a system which provides information about current petrol prices at most, if not all, service stations in Western Australia. This information can be accessed for free using FuelWatch’s website or by calling up a hotline for the cost of a local call (using your handsfree kit if you are driving!). You simply state your location and you then find out where the cheapest petrol is closest to you.

FuelWatch obtains this information by way of some minor regulation of how petrol prices are set in Western Australia. Under WA legislation service stations are required to notify FuelWatch of the next day’s petrol prices by 2pm. This information is then entered into the system, to be accessed by the Internet or the hotline. Priceboards and pump prices can only be changed once a day, at 6am and must remain unchanged for 24 hours. This protects motorists from the intra-day petrol price fluctuations that are common in other parts of Australia.

The system was introduced at a fairly small cost to the Western Australian Government, and has provided significant benefits to motorists. A survey conducted in 2005, indicated that up to 72 per cent of motorists used the service. It showed that, on average, using FuelWatch saved every motorist $2.50 a week or collectively $1.6 million a week or $85 million a year.

Given that motorists all over Australia are feeling the pressure of increasing petrol prices, it is time that the Federal Government acted to introduce such a system nationwide. Looking at the savings provided in Western Australia, there is the potential to save motorists hundreds of thousands of dollars nationwide. And as petrol prices climb to an all time high, any savings would be appreciated.