I move that the Bill be now read a Second Time.
The object of this Bill is to confirm Orders which I have made under the Restrictive Trade Practices Act, 1953, on the recommendation of the Fair Trade Commission, relating to trade practices affecting the supply and distribution of motor spirit and motor vehicle lubricating oil.
Deputies have already received copies of the Commission's report, but it may be helpful if I give here a summary of its contents.
Petrol is distributed in this country by six wholesale companies, Esso, Irish Shell, Caltex, Shamrock, McMullan and Munster Simms. The three first-named are the major distributors and supply over 80 per cent. of the market. They are subsidiaries of large outside organisations engaged in all phases of the petroleum industry. These parent organisations jointly established, in 1959, the refinery at Whitegate which now produces the country's full requirements of motor spirit.
Consumption of motor spirit rose from 60 million gallons in 1950 to 80 million gallons in 1959. In that period the number of retail sites rose from 1,630 to 3,470. This increase of 113 per cent. in the number of retail outlets compares with an increase over the same period of 73 per cent. in the number of motor vehicles and 45 per cent. in the sale of motor spirit by retailers. It is significant that the average annual "throughput" of spirit per site fell from 30,000 gallons in 1950 to 20,000 in 1958.
Up to 1950, the bulk of retail sales of motor spirit was through "mixed" sites, i.e. sites which sold the brands of more than one petrol company. Towards the end of that year, the formal exclusive dealing arrangement, commonly referred to as the "solus" system, was introduced, and was eventually adopted by all the petrol companies. By 1959, 98 per cent. of retail outlets were operating on the "solus" system. Briefly, the principal feature of this system is that the retailer, in return for a monetary payment (known as the solus rebate), and other considerations, agrees to purchase from a particular company his full requirements of petrol for a specified period. The rebate, of 3/8ths of a 1d. to 1/2d. per gallon of the retailer's total gallonage for the period covered by the agreement, is usually paid in advance. The other considerations include loan facilities on favourable terms, aids to sales promotion, and free uniforms and training for staff. The earlier "solus" agreements were usually for one year, but more recently their duration has been extended to five, ten and sometimes twenty years.
The six petrol companies distribute their own brands of motor vehicle lubricating oil. In addition, there are four companies which specialise in lubricating oil. The retail outlets are the same as for motor spirit, and the sales represent about 1 per cent. of total sales of petroleum products. The "solus" agreements of the petrol companies also contained provisions imposing varying restrictions on sales by the retailer of motor oil supplied by competitors and in later years special agreements, operated in conjunction with special rebates, were made, the object of which was to encourage the "solus" dealer to purchase all or most of his requirements of lubricating oil from the company which supplied him with petrol.
The majority of retail sites are owned by independent dealers. Up to 1954, the petrol companies did not own or operate any such sites, but since then some of them began to acquire their own sites—mostly service or filling stations—and by 1959, 113 such sites which are normally leased to tenants, had been acquired.
In 1958 the Fair Trade Commission received a request from the Irish Motor Traders' Association for the holding of an inquiry into the conditions operating in the supply and distribution of petrol and lubricating oil, and, having received observations and comments from interested parties, the Commission decided that it would be appropriate to hold a public inquiry.
At the inquiry the Irish Motor Traders' Association, the only trade association which expressed an interest in matters affecting the retailing of motor spirit, stated that they had opposed the introduction of the "solus" system in 1951, but claimed that the manner in which the wholesale price of petrol had been manipulated had left traders with no option but to accept the system. While not pressing for its abolition, they considered that a "solus" dealer should be free, on the expiration of his contract, to select the system of trading which he prefers; also, that the agreement should contain a "break" clause which would allow a dealer to terminate it on equitable terms.
The Association also asserted that, following the introduction of the "solus" system, the strenuous competition between the petrol companies for control of retail outlets had led to an uneconomic multiplicity of sites, with the result that, although the overall sales had increased substantially, there had been a significant drop in the average sales per outlet. They objected also to the situation where independent retailers would be in competition with the company-operated sites, and called for the establishment of an independent licensing authority to regulate the growth of new retail outlets on the basis of public need.
At the time of the inquiry, the major petrol companies pursued a vigorous policy of inducing "mixed site" dealers to change to the "solus" arrangements, but the small number of "mixed" dealers who had not accepted the new system continued to be supplied on a "mixed" basis. New entrants, however, would be supplied only on a "solus" basis, and although a "solus" dealer was free, at the termination of his agreement, to change to another supplier, it could only be on a "solus" basis, and supplies would be withheld if he wished to revert to "mixed" trading. The minor companies, while they also followed the "solus" policy, would generally supply, on a "mixed" basis, both new entrants and persons who had formerly operated on a "solus" basis.
The wholesale price of petrol is uniform, with, of course, the special rebate already mentioned as allowed to "solus" dealers. Price changes were usually initiated by one or other of the two largest companies, who notified all other companies in advance, and ascertained before announcing increases that the others would make a corresponding increase. Price competition at retail level was discouraged, and the recommended retail prices were generally observed. It was apparent from the evidence presented at the inquiry that, because variations in the price and quality of the product were insignificant, the competition between the petrol companies as wholesalers was limited to advertising and methods of distribution.
In the supply of motor spirit to commercial users no exclusive dealing arrangements were practised, but prices quoted in reply to tenders from large commercial users were related to a common schedule, resulting in identical quotations from all the tendering companies.
There were no uniform wholesale prices for lubricating oil at the time of the inquiry, and none of the distributing companies took steps to enforce recommended prices. Retailers' profit margins varied between the various companies and grades. Prior to the introduction of the "solus" system for motor spirit, the trading terms of all companies distributing lubricating oil provided only for quantity discounts, with deferred rebates on an equal scale for all traders. As I have already mentioned, the petrol companies have introduced, sometimes in conjunction with their "solus" petrol agreements, supplementary agreements providing for exclusive dealing arrangements in lubricating oil. The four specialist companies continued to trade on the old basis, and three of them complained at the enquiry that the lubricating oil arrangements of the petrol companies were unfair to them and contrary to the public interest. Figures submitted to the Commission showed that those four specialist companies failed to maintain their proportion of a rising market in lubricating oil between 1951 and 1959, while the share enjoyed by the petrol companies rose from 63 per cent. to 72 per cent. in the same period.
In their submissions at the inquiry, the main advantage claimed by the petrol companies for the "solus" system was that it had achieved considerable savings in distribution costs which, in an inflationary period, enabled prices to the motorist to be kept at a lower level than would have been possible otherwise. The major companies claimed that the retailer, too, found the system advantageous to him. He benefited from the free training facilities provided for his staff; the advice and assistance afforded expanded his sales and increased the efficiency of his business, and all his requirements in equipment were available to him on hire-purchase terms which were much more favourable than those charged by finance houses.
In their report, the Fair Trade Commission accepted that the "solus" system has been a satisfactory method of distribution from the standpoint of the wholesaler, and that it lends itself to greater economies in distribution than the system of "mixed" trading. They pointed out, however, that it stimulated entry into the retail trade to an extent not justified by the rate at which the overall consumption of motor spirit was increasing. The Commission expressed the opinion that the economic benefit of the system can be retained if its effect on entry can be damped down, and they recommended that incentives to new entrants in the form of advance payment or rebates or the giving of loans at less than commercial interest rates should be completely discontinued for the present. Further, as regards company-owned stations, they recommended that any petrol company proposing to build or acquire new outlets should be required to notify the Commission in advance and furnish any information required by the Commission.
The Commission made a number of other recommendations designed to prevent unfairness in the operation of the "solus" system. They recommended that the small number of dealers who are at present receiving supplies on a "mixed" basis should, unless they change to "solus" trading at any stage, continue to be supplied on a "mixed" basis by their existing wholesalers. At the earlier stages of the "solus" system, it was not made clear to dealers that they could not revert to "mixed" trading on the expiration of their agreements, and the Commission, therefore, recommended that any "solus" dealer who had been supplied on a "mixed" basis at any time in the period 1950 to 1956, and who wishes to return to that form of trading, should be enabled to do so on the next expiration of his "solus" agreement.
The Commission considered that "solus" agreements of prolonged duration are unnecessary and undesirable in that they tend to produce a rigid division of the market between the companies, and, accordingly, they proposed that any future agreement providing for exclusive dealing in motor spirit should not exceed a period of five years and that any loan, mortgage or hire-purchase arrangements or agreements should not be linked in any way with provisions for exclusive dealings for longer than five years.
While there is no suggestion that entry to the wholesale trade in motor spirit has been limited or controlled by collective arrangements, the Commission considered that a new wholesaler would find it more costly and difficult to obtain outlets under the "solus" system, and, accordingly, they recommended a prohibition on any concerted action by wholesalers to restrict entry or to eliminate unfairly a competing wholesaler.
In the opinion of the Commission the system of prior consultation between the petrol companies on price changes is a form of price regulation and restraint on free competition in pricing, and should be prohibited. So far as the supply of motor spirits to large-scale commercial users is concerned, the Commission took the view that tendering based on an arrangement or understanding between the petrol companies concerned frustrates the function which the system of tendering was devised to perform and should be prohibited.
Apart from the rebate paid to "solus" dealers, the Commission considered that there should not be any price discrimination between retailers, and they recommended accordingly. The Commission recommended also that the price differential between "solus" and "non-solus" retailers should be reasonable, and be justifiable having regard to the functions which the "solus" retailer is required to perform. The Commission proposed that the petrol companies should lodge their terms and conditions with them, so that this and other relevant matters can be kept under review.
In 1954, the Fair Trade Commission made Fair Trading Rules relating to entry into the retail trade in motor spirit which prohibited suppliers from refusing supplies to any person who fulfilled the normal conditions required by the supplier as to payment, minimum purchases, etc. These rules will not be necessary if effect is given to the Commission's recent recommendations and in that event the Commission propose to rescind them.
As regards lubricating oil, the Commission were of the opinion that, if the companies which specialise in this commodity are to survive, they must have access to "solus" sites which now represent the vast majority of retail outlets. They considered, therefore, that the supply of lubricating oil to retailers should be the subject of a separate arrangement not related to any arrangement for the supply of petrol. The Commission expressed the view that special incentive rebates and other arrangements tend to limit the public in its choice of lubricating oil and are contrary to the public interest. The terms of sale should not provide for exclusive purchase, display or advertising. All terms and conditions should be applied to all traders without discrimination and should be furnished to the Commission. The Commission further recommended that a trader should not be refused supplies of motor spirit or lubricating oil solely because he is or is not a member of a trade association.
The Commission finally recommended that collective fixing of prices or margins for lubricating oil and collective enforcement of resale prices for motor spirit or lubricating oil should be prohibited.
The Restrictive Trade Practices Act, 1953 provides that an Order of this kind shall not have effect unless it is confirmed by an Act of the Oireachtas. The Bill now before the House is the Confirmation Bill which is necessary to give force of law to the two Orders concerned in this case. I would like to mention at this stage that the second Order merely made a simple drafting amendment of the first Order and was designed to define, in a manner more in keeping with the Commission's recommendations, the types of trading agreements or arrangements which will continue to be permitted under Articles 12 (2) of the first Order.
In the case of Confirmation Bills, the arrangement is that the Orders which it is proposed to confirm would not be capable of being amended by the House but would be accepted or rejected as they stand. The matters dealt with in the Orders have been the subject of a detailed public enquiry by the Fair Trade Commission, and the arguments in favour of adopting the provisions embodied in the Orders are set out in the Commission's Report. I have no hesitation in commending to the House this Confirmation Bill which, on enactment, will, I hope, lead to improvements in the supply and distribution of motor spirit and lubricating oil.
