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Focus: Resources – July 2007

Federal Government amends petroleum legislation

In brief: The Federal Government's new petroleum legislation repeals the Petroleum Retail Marketing Sites Act 1980 and the Petroleum Retail Marketing Franchise Act 1980 and introduces a mandatory industry code that applies to a broader range of industry participants. Partner Chris Schulz (view CV) and Lawyers Jaelle Berkovits and Scott Stiegler provide an overview of the new legislation, which commenced on 1 March this year.

• The Petroleum Retail Legislation Repeal Act 2006
• The Oilcode
• Fuel re-selling agreements
• Terminal gate pricing
• Dispute resolution
• Conclusion

The Petroleum Retail Legislation Repeal Act 2006

The new legislation

The Petroleum Retail Legislation Repeal Act 2006 (Cth) (the Act) forms part of the Federal Government's Downstream Petroleum Reform Package. The reform package also includes the introduction of the Trade Practices (Industry Codes – Oilcode) Regulations 2006 (the Oilcode) as a mandatory industry code under section 51AE of the Trade Practices Act 1974 (Cth). The Act and the Oilcode commenced on 1 March 2007.

The previous legislation

The Act repealed the Petroleum Retail Marketing Sites Act 1980 (Cth) (the Sites Act) and the Petroleum Retail Marketing Franchise Act 1980 (Cth) (the Franchise Act), which previously regulated aspects of the fuel industry.

The Sites Act limited the number of retail sites that could be operated by the major oil companies by setting quotas for each major oil company based on the capacity of that company's domestic fuel refineries. The restrictions on site numbers were intended to encourage major oil companies to use franchise arrangements (which were not within the quotas set by the Sites Act) at retail sites and therefore encourage small business in the retail fuel market.

The Franchise Act also sought to encourage small businesses to enter the retail fuel market by providing minimum standards and conditions for franchise agreements and a corresponding level of certainty and protection for franchisee service station operators during negotiations with major oil companies.

The need for reform

The Explanatory Memorandum to the Petroleum Retail Legislation Repeal Bill 2006 describes the changes in the structure of the market since the introduction of the Sites Act and the Franchise Act as a major influencing factor for reform. In the second reading speech for the Bill, the Minister for Industry, Tourism and Resources stated that the Sites Act and Franchise Act 'failed to keep pace with the changes in the structure of the retail petroleum market and have created a subcompetitive retail environment, which imposes higher costs on Australian industry and motorists'.¹

The Explanatory Memorandum notes that multi-site franchising, the entry of large independent chains into the market, price support and changing costs structures meant that the legislation became an 'inappropriate tool for meeting the regulatory objectives of counteracting the market dominance of the refiners/marketers and encouraging small business entry into the industry under franchise arrangements.'²

The Sites Act and Franchise Act did not apply to supermarkets and independent retail chains, which now contribute significantly to retail fuel sales in Australia. This gave these entities a competitive advantage over the major oil companies whose ability to determine the most appropriate business structure for retail sites was constrained by the provisions of the legislation. In addition, the protection afforded by the Franchise Act applied only to franchisees and not to small businesses operating retail fuel sites under commission agency agreements.³

The objective of the Government in repealing the Sites Act and Franchise Act and introducing the Oilcode was to address the regulatory failure that resulted from the application of the legislation and to facilitate an 'equitable market environment for petroleum wholesale suppliers and retailers, whilst recognising the power imbalance inherent in the substantial interdependency between some small business operators and wholesale fuel suppliers.'⁴

The Oilcode

The Oilcode was introduced as a mandatory code under section 51AE of the Trade Practices Act and is binding on all participants in the industry.

The Oilcode applies to suppliers, distributors and retailers of declared petroleum products (including unleaded petrol and diesel) and regulates fuel re-selling agreements and associated retail activities. The Oilcode does not apply to fuel re-selling agreements where the volume of fuel involved is less than 30,000 litres per month.⁵

Broadly, the Oilcode is intended to regulate the conduct of participants in the downstream petroleum retail industry by providing for:

• minimum standards for fuel re-selling agreements between suppliers and retailers;
• a nationally consistent approach to terminal gate pricing arrangements; and
• an inexpensive and efficient mechanism for resolving disputes between participants in the industry.⁶

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Fuel re-selling agreements

The Oilcode establishes minimum standards for fuel re-selling agreements between wholesale suppliers and retailers. The Oilcode builds upon the contractual conditions in the Franchise Act and the Franchising Code of Conduct,⁷ which regulate other franchising activities in Australia, and closely follows other aspects of this legislation. The introduction of minimum standards for fuel re-selling agreements and the provisions in the Oilcode relating to disclosure and variation and termination of fuel re-selling agreements promote consistency and provide greater certainty and protection for parties to transactions of this nature.⁸

The Oilcode introduces obligations for disclosure by suppliers before fuel re-selling agreements are entered into with retailers, during the term of the fuel re-selling agreements and upon renewal or transfer of fuel re-selling agreements. Suppliers must create and maintain a disclosure document in accordance with the Oilcode for the purpose of entering into fuel re-selling agreements and must create a further disclosure document in respect of an agreement not later than three months after the end of each financial year during the term of that agreement.⁹

The Oilcode provides that the disclosure documents are used to:

• allow a supplier to give adequate information to help a retailer make a reasonably informed decision about an agreement; or
• give a retailer current information that is relevant to the operation of the retailer's business.¹⁰

A supplier must not enter into a fuel re-selling agreement, renew or extend a fuel re-selling agreement or receive non-refundable money under a fuel re-selling agreement before receiving a signed statement from the retailer that it has received, read and had a reasonable opportunity to understand the disclosure document and the Oilcode.¹¹ A supplier's disclosure documents must be in the form specified in the annexures to the Oilcode.

The Oilcode also introduces a cooling-off period during which retailers may terminate fuel re-selling agreements. The cooling-off period runs for seven days from the earlier of a retailer entering into a fuel re-selling agreement or paying money under a fuel re-selling agreement but does not apply to renewals, extensions or transfers of existing fuel re-selling agreements.¹²

Fuel re-selling agreements entered into after the commencement of the Oilcode must have a minimum term of five years (subject to certain exceptions).¹³ If a fuel re-selling agreement requires a retailer to purchase fuel from a supplier and relates to a retail site owned or leased by the supplier, the fuel re-selling agreement must also contain an option for a further term of at least four years.¹⁴ Fuel re-selling agreements entered into before the commencement of the Oilcode will retain the duration specified in the agreements.¹⁵

The Oilcode also contains provisions regulating the renewal, variation, transfer and termination of fuel re-selling agreements.¹⁶

Terminal gate pricing

The Oilcode seeks to improve transparency in fuel pricing at the wholesale level of the industry by introducing a nationally consistent approach to arrangements regarding the terminal gate price (TGP) of declared petroleum products. It also seeks to allow access for all customers (including small businesses) to petroleum products at a published TGP, while preserving the ability of industry participants to negotiate individual supply agreements and offer discounts.¹⁷

The Oilcode requires suppliers to identify the TGP they charge each day for the wholesale sale of each declared petroleum product.¹⁸ The TGP for each declared petroleum product is the wholesale price for that product expressed in cents per litre and worked out on a 15°C temperature corrected basis.¹⁹ A wholesale supplier must make its TGP available to the public each day, either on a website or available through a telephone or facsimile service.²⁰

Dispute resolution

The Oilcode also establishes an independent dispute resolution scheme for the industry and provides for the appointment of a dispute resolution adviser.

The dispute resolution scheme will apply in relation to:

• a dispute arising if a wholesale supplier fails to supply a declared petroleum product to a customer;
• a dispute arising in relation to TGP and related arrangements under the Oilcode; and
• a dispute arising between the parties to a fuel re-selling agreement or in relation to the fuel re-selling provisions in the Oilcode.²¹

The dispute resolution scheme under the Oilcode is designed to provide the industry with an ongoing efficient and cost-effective mechanism for resolving disputes. Determinations made under the dispute resolution scheme are not binding and the scheme does not prevent parties from commencing legal proceedings or lodging a complaint with the ACCC in relation to a matter arising under the Oilcode.²²

Conclusion

As the Oilcode was introduced as a mandatory code under the Trade Practices Act 1974 (Cth), the Australian Competition and Consumer Commission (ACCC) will be responsible for monitoring compliance with, and enforcement of, the provisions on the Oilcode and will have greater involvement in the retail fuel industry. It remains to be seen whether the introduction of the new legislation, together with the increased involvement of the ACCC, will increase competition in the retail fuel industry.

Footnotes

1. Second Reading Speech, Petroleum Retail Legislation Repeal Bill 2006.
2. Explanatory Memorandum to the Petroleum Retail Legislation Repeal Bill 2006.
3. Second Reading Speech, Petroleum Retail Legislation Repeal Bill 2006.
4. Explanatory Memorandum to the Petroleum Retail Legislation Repeal Bill 2006.
5. Section 6, Trade Practices (Industry Codes – Oilcode) Regulations 2006.
6. Explanatory Memorandum to the Petroleum Retail Legislation Repeal Bill 2006.
7. Trade Practices (Industry Codes – Franchising) Regulations 1998.
8. Second Reading Speech, Petroleum Retail Legislation Repeal Bill 2006.
9. Section 13, Trade Practices (Industry Codes – Oilcode) Regulations 2006.
10. Section 14, Trade Practices (Industry Codes – Oilcode) Regulations 2006.
11. Section 20, Trade Practices (Industry Codes – Oilcode) Regulations 2006.
12. Section 24, Trade Practices (Industry Codes – Oilcode) Regulations 2006.
13. Section 32, Trade Practices (Industry Codes – Oilcode) Regulations 2006.
14. Section 32, Trade Practices (Industry Codes – Oilcode) Regulations 2006.
15. Section 32, Trade Practices (Industry Codes – Oilcode) Regulations 2006.
16. See sections 33 to 39, Trade Practices (Industry Codes – Oilcode) Regulations 2006.
17. Second Reading Speech, Petroleum Retail Legislation Repeal Bill 2006.
18. Section 8, Trade Practices (Industry Codes – Oilcode) Regulations 2006.
19. Section 8, Trade Practices (Industry Codes – Oilcode) Regulations 2006; 'The Guide to the Oilcode: Information for Industry Participants in the Downstream Petroleum Retail Industry' (published by the ACCC).
20. Section 9, Trade Practices (Industry Codes – Oilcode) Regulations 2006.
21. Section 40, Trade Practices (Industry Codes – Oilcode) Regulations 2006.
22. Sections 45 and 47, Trade Practices (Industry Codes – Oilcode) Regulations 2006.

For further information, please contact:

• Chris SchulzPartner, Melbourne
  Ph: +61 3 9613 8772
  Chris.Schulz@aar.com.au
• Ben ZillmannPartner, Brisbane
  Ph: +61 7 3334 3538
  Ben.Zillmann@aar.com.au
• Angus JonesPartner, Perth
  Ph: +61 8 9488 3709
  Angus.Jones@aar.com.au
• Grant HigginsPartner, Brisbane
  Ph: +61 7 3334 3540
  Grant.Higgins@aar.com.au
• Mark StubbingsPartner, Sydney
  Ph: +61 2 9230 4257
  Mark.Stubbings@aar.com.au
• David MaloneyPartner, Sydney
  Ph: +61 2 9230 4724
  David.Maloney@aar.com.au

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