I move: "That the Bill be now read a Second Time".
The object of the Bill is to confirm the Restrictive Practices (Motor Spirit and Motor Vehicle Lubricating Oil) Order, 1981, which was made on 4 March under section 8 of the Restrictive Practices Act, 1972.
At the Minister's request the Restrictive Practices Commission carried out an inquiry under section 5(1) of the Act into the operation of the Restrictive Practices (Motor Spirit) Orders, 1961 to 1975, into any other matters germane to the operation of these orders and also into conditions which obtain in regard to the agreements under which stations which are company-owned but not company-run are operated.
The principal orders which the commission considered were made in 1961 and 1972. The 1961 order regulates the "solus" system of trading — the system under which a retailer undertakes to deal exclusively in one brand of motor spirit. The 1961 order also prohibits certain restrictive practices in relation to the supply and distribution of motor spirit and lubricating oil. The 1972 order imposed a ban on the opening of additional company-owned petrol stations for a period of three years. This ban was extended by several orders the latest of which was made in December, 1980 and it extended the ban to 18 March 1981. I am advised that when this Confirmation of Order Bill is passed the order becomes retroactive. Provisions of the order being confirmed will apply from 4 March, the date it was made.
I attach particular importance to a number of recommendations made by the commission for the amendment of the existing orders. The first, affecting the supply and distribution of motor spirit, is that it should be illegal for a petrol wholesaler to fix a minimum delivery level to uncontracted outlets at more than 4,000 litres — 888 gallons — in the cases where only one grade is being delivered or 5,000 litres — 1,100 gallons — where more than one grade is involved.
Deputies will probably recall that early in 1980 one of the major oil companies informed its uncontracted customers, that is, non-solus customers, of its intention to introduce a minimum delivery of 5,000 litres — 1,100 gallons — of one grade or 7,000 litres — 1,500 gallons — where more than one grade of petrol was involved. The commission considered this development very relevant to their terms of reference and they reopened the inquiry to deal with it.
A representative of the company which made the proposal accepted that the setting of a minimum delivery of 5,000 litres — 1,100 gallons — would automatically exclude those stations which at present have storage for only 1,000 gallons. In fact, it appeared to the commission that stations with 1,000 gallon tanks could consistently take deliveries of no more than about 4,000 litres — 888 gallons — because these tanks can contain up to 70 gallons of slurry and, in addition, the order would be even less than 930 gallons since allowance has to be made for a carry-over; the trader would not want to run out of stock before a delivery was made.
There is a large number of stations with 1,000 gallon tanks and I do not consider their level of efficiency to be so low as to justify their disappearance from the market. Furthermore, their disappearance would cause problems for the consumers. For these reasons we have decided to agree with the commission that the proposed 5,000 litre — 1,100 gallon — minimum delivery could not be accepted.
However, we are satisfied that the few 2,500 litre — 500 gallon — tank stations are in a different class, and it is quite probable that in any event they will not remain in business much longer because they are unlikely to meet the cost of converting to metricated petrol pumps — something which has to be faced shortly.
Accordingly, in the interests of efficiency and economy in distribution, petrol suppliers should be free, within reasonable limits, to decide on levels of minimum deliveries and I am satisfied that the commission's proposals are fair and reasonable. The order provides that where a wholesaler decides to fix minimum deliveries they may not be lower than 4,000 litres — 888 gallons — of one grade or 5,000 litres where two or more grades are a delivery. The provision merely empowers the companies to introduce these minimum deliveries and I hope that, insofar as possible, companies will adopt a more liberal policy than the letter of the law provides for. In particular, I would urge the companies to give the smaller-capacity outlets reasonable time should they opt to increase their storage facilities.
The second important recommendation in the report which is provided for in the order relates to the ban on additional company stations which has been in force for about nine years. The restriction is in the public interest because, otherwise the overall share of the retail market held by the petrol companies would be much greater with the undesirable results of increased rigidity in the market and the danger of restrictive or discriminatory practices. Company retail outlets numbered 476 in 1979 compared with 514 in 1973. Retail sales by company-owned stations fell from a maximum of 38.1 per cent of total sales in 1973 to 35.7 per cent in 1974 and did not exceed 36.8 per cent in 1976, 1978 and 1979. It is clear that the orders stabilised the number of company-owned stations and their share of the market. The removal of the restrictions would not be justifiable but it is accepted that some modification is called for.
The provisions of the existing orders were designed to leave such a share of retail sales in the hands of independent retailers — those who are not tied to petrol companies — that it would be possible for new wholesalers to enter the market. However, it was represented that the ban on new company-owned stations made it impossible for new wholesalers to set up a number of retail stations around which to build up a network of independent retailers. Deputies will appreciate that a new wholesaler in any line of goods has problems and that a new petrol wholesaler — perhaps an unknown quantity so far as the trade is concerned — might find it very hard to entice retailers from their normal source of supply. There is no intention of sabotaging the existing wholesalers but we are satisfied that the emergence of new wholesalers, who could, perhaps, exploit non-traditional sources of supply of petrol, should get certain minimum facilities.
Accordingly, we have provided in the new order that every wholesaler, existing and prospective, should be free to have 20 retail outlets. Some have more than 20 at present and they will be free to retain as many as they have, but any company with fewer than 20 stations can make good the short-fall. And, of course, new wholesalers can open up to 20 stations, which should give them a reasonable launch into retail distribution.
There was a provision that allowed a station to be opened within three miles of the site of a station from which traffic had been diverted by road developments or which was compulsorily acquired. This did not enable companies to respond to changed conditions in relation to new housing schemes, shops, factories, traffic flow and so on. To provide for this, there is a provision in the order that any company should be free to open up two new stations in any year if it divests itself of a like number in that year.
It has been calculated that the provision to allow additional company stations, subject to a maximum of 20 per company, will not increase significantly the petrol companies' share of the retail market; and, of course, the opening of new or replacement stations will be subject to the Planning Acts. What has been provided in the order is no more than reasonable.
The Restrictive Practices Commission reported that in 1978 234 out of 478 company-owned outlets were held under short-term arrangements — that is to say, licences or agreements with a term of less than three years. I am satisfied that these figures have not changed significantly since 1978. Evidence given at the inquiry made it clear that the legally weak position of the short-term operators in their dealings with the companies, particularly as regards security of tenure, was a great cause of concern in the retail trade.
The companies took the position that if they were to give longer leases there would be undesirable consequences for them as long-term lessees could concentrate on other activities at the site at the expense of petrol sales because of the low margin on petrol. It was reported that average through-put in existing long-lease outlets is very much lower than in other company outlets.
While no evidence was found that in general the companies have treated their short-term operators other than in a reasonable and humane manner, it is clear that the lack of security of tenure of a station is likely to leave an operator more susceptible to pressure in such matters as trading hours, rents, promotional activities and so on — most of which will, or be likely to, add to selling costs without a guaranteed comensurate increase in profits.
What we are providing for in the order is that all short-term operators of company stations should be holders of licences which would run for three years with a right of renewal on fair and reasonable terms unless the company discontinues the operation of the station for a stated reason and in accordance with prescribed procedure. In general terms, the reasons for terminating a licence are: failure of the licensee to perform his statutory duties; failure to pay money due to the company; serious breach of contractual obligations; failure or inability to run the station satisfactorily; reaching an age limit set by the company; or the decision of the company to dispose of their interests in it, to close it down or run it otherwise than through a licensee.
Where the question of a breach of contractual obligations or the failure or inability of the licensee is disputed, the licensee has the right to go to arbitration; and where the company decides to dispose of it, close it down or run it otherwise than through a licensee, the licensee will be entitled to compensation. The notice to be given is prescribed. Ordinarily it will be three months but in exceptional circumstances — if there is a serious threat to property or life or any other incident classifiable as force majeure— the notice can be reduced to whatever in the circumstances is reasonable.
All existing licences will be deemed to contain provisions indicated in the order and the existing licences should be, in practice, in all respects the same as licences drawn up after the order comes into force.
Where the question of compensation on termination of a licence arises, the amount of the compensation will consist of (a) payment of one-fifteenth of the licensee's net income for the previous 12 months for each year a licence or short-term lease has been held continuously, plus (b) the full cost of redundancy payments due by the licensee to employees, plus (c) payment of the wholesale price of stocks held by the licensee. There is a provision which applies where a company say that they propose to dispose of a station, close it down or run it otherwise than through a licensee and it turns out that this reason for not renewing a licence is spurious. In that event the compensation will be doubled.
The order provides that disputes in the matter of rents, trading hours, engaging in other activities — that is, other than the sale of petrol or oil — should also be arbitrable.
The arbitration arrangements will be binding on both parties and the arbitrator will be a person appointed by the President of the Incorporated Law Society.
What I have outlined are the main provisions to give better security to short-term occupants of stations. Needless to say, I would have no objection to their all getting long-term tenancies which would have the protection of the Landlord and Tenant Acts, but this is not something which could reasonably be imposed on the companies and — perhaps more important — fair terms and conditions on which long-term leases would be offered would often be beyond the capabilities of short-term operators. Many of them, I feel sure, simply could not afford to pay the higher charges which could reasonably be expected when a company tied themselves under a long-term lease.
One of the recommendations of the commission was that the existing orders should be consolidated and it is in everyone's interest that people inquiring into the law relating to motor spirit distribution should not have to work their way through a series of orders. Therefore, much of the order we are confirming reiterates such basic statutory rules as the ban on differentiation between traders of the same class; the circumstances in which suppliers may and may not apply different terms and conditions to different classes of traders; exceptional circumstances in which supplies may be refused; provisions relating to solus agreements; the prohibition of certain agreements and arrangements to restrict persons rights to trade, and so on. The basic rules have been in force for 20 years and except for some minor additions and amendments made — mainly in 1972 — they have stood the test of time and are still appropriate.
In addition to the major additions I mentioned earlier, there are a few others I think I should draw the House's attention to.
There is a provision in an existing order that a solus agreement shall not be for a term in excess of ten years and no loan agreement, mortgage or hire purchase agreement can require a retailer to tie himself to a supplier after the expiry of his solus agreement. So far as it goes, that is still a good provision. But Deputies will appreciate that, if a retailer who is not a solus retailer still owes money to a supplier after his agreement, lease or licence expires, it will be difficult for the retailer to cut himself adrift and look for a new supplier. I have no grounds for suggesting that a retailer would often want to look for a new supplier but the commission recommended, and we have accepted, that a supplier should be free to pay off in advance, and in a single payment at any time he chooses, money due to a supplier whether the amount was due in one payment or in instalments. The order provides that, where there is interest payable, it should be reduced by such amount as may be appropriate having regard to the date and the amount of the repayment. But the interest, whether or not it is reduced, has to be repaid at the same time as the repayment of the capital sum.
It is accepted that a supplier should be free to require a solus retailer to keep a petrol station open during reasonable hours, but the commission recommended, and we have provided, that the times of opening and closing should be left for the retailer to decide.
In the course of the inquiry one supplier considered that the use of their brand name and trade mark should be restricted to the contracted independent and company-owned stations. They said that during the petrol shortage in 1978 some stations were selling petrol which purported to be their brand whereas it was obtained from another supplier. They considered that this could lead to quality control problems and was not fair to their image. I am satisfied that the company had a grievance in certain respects and there is nothing in the order to prevent a supplier from recovering, or requiring the removal of any sign, which would convey to the public that a special degree of association existed between that station and that supplier. On the other hand, however, the public are entitled to know what brand of petrol is being sold from a pump and there is a provision in the order that a wholesaler shall not prohibit, restrict or penalise the display on a pump used for dispensing motor spirit an indication of the brand being dispensed by the pump.
I am satisfied that the order we are confirming contains all the provisions required to regulate in a fair and equitable way the trading relations of petrol wholesalers and retailers. I commend the Bill to the House.
