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Tuesday, December 16, 2008

Oil company rip-off

The four major oil companies who jointly own New Zealand’s only oil refinery at Marsden Point use their ‘monopolistic’ position to screw the minority shareholders of the refinery out of half the profits they would otherwise be due.

BP, Mobil, Shell and Caltex own nearly 75% of the shares of the NZ Refining Company. They siphon off millions of dollars from the company in a “discount” arrangement which means last year they paid $286 million in processing fees instead of the "gross fee" of $430 million they should have been liable for: a discount of $144 million or 33%.

Up to August this year they have jointly paid only $US149 million instead of the “gross” amount of $US311.8 million they should have coughed up: that is an even greater discount of 48%.

The gross fee is calculated as the amount it would cost to refine the oil into petrol and diesel in Singapore and ship it to New Zealand from there. The costs of refining in New Zealand would undoubtedly be higher than those in Singapore, with its economies of scale, so even the so-called gross fee would be a cheap rate.

Those that lose out from the oil companies' sweetheart deal for themselves are the minority owners of the refinery shares. The 3,000 small shareholders have found a voice in retired banker Dom Kloosterman who calculated the figures above to quantify the “great injustice” done to them by this siphoning off of profits by the oil companies.

Kloosterman calculated that last year’s pre-tax profits should have been $293 million instead of the $149 million that was actually recorded. The $144 million difference was pocketed by the oil companies.

The processing discount arrangement has been in place since 1995. The oil companies have the refinery literally over a barrel because there are no other customers. Annual reviews to the arrangement have brought no real change.

The anti-competitive, oligarchal behaviour of the oil companies is legendary as witnessed by us all with the convenient price setting mechanisms in operation at the petrol pump. New Zealand once had an independent oil company owned by Todd Brothers which, from the 1930s, imported petrol from Russia. This was marketed under the Europa brand until the 1970s when BP bought the company and shut it down.

1 comment:

Richard McGrath said...

Strange isn't it Len, that despite the "anti-competitive behaviour" of the oil companies, the price of petrol at the pump dropped by 30% in the last 12 months?