The ACT Government has threatened to control the price of petrol in Canberra from next week — a market intervention not seen in Australia for more than two decades.

Key points: Canberra petrol prices are substantially higher than prices in surrounding towns and most cities

Canberra petrol prices are substantially higher than prices in surrounding towns and most cities The ACT Government says it will cap retail petrol margins if prices don't fall below $1 by this weekend

The ACT Government says it will cap retail petrol margins if prices don't fall below $1 by this weekend Fuel prices have not been regulated in Australia since 1998

Fuel prices have plummeted across Australia and the globe during the coronavirus pandemic, as workers stay at home to stop the infection spreading.

But the price has fallen far slower in Canberra, a trend Chief Minister Andrew Barr has blamed repeatedly on retailers gouging ACT drivers.

"We know we're being gouged and it has got to stop," he said.

Mr Barr has warned service stations that he will cap their retail margins — the difference between the wholesale and bowser price — if prices remain more than $1 per litre after this weekend.

He also threatened to enforce fines of up to $40,000 and six months jail time if retailers were found gouging customers.

"We have a market failure that necessitates government intervention," Mr Barr said, adding he had decided to act because industry operators had failed to explain their practices.

"I've had some replies which are frankly dismissive of the issue," he said.

"I accept that the wholesale price of fuel will fluctuate, and it has dropped dramatically.

"We have seen a reduction in the ACT, but nowhere near enough."

The ACT's Fair Trading Act empowers the Government to set a maximum retail margin if the fair trading commissioner recommends it, which is likely.

Mr Barr's office has requested the commissioner begin assessment and provide that recommendation.

Strong support for intervention

Yesterday, the federal competition watchdog endorsed Mr Barr's approach.

Rod Simms, chairman of the Australian Competition and Consumer Commission, said capping retail margins was "entirely within the [ACT] Government's remit".

"Threats like that do work," he said.

He referred to Northern Territory legislation, passed four years ago, that forced retailers to publish their profits.

"It had an immediate effect on petrol prices in Darwin," Mr Simms said.

"I mentioned some time back that if petrol companies don't adjust their petrol prices as they should be, in times of national crisis, they shouldn't be surprised if governments take action.

"Chief Minister Barr is just doing what I thought could well happen."

Planning decisions have left some petrol stations with "low visibility", hampering consumers. ( ABC News: Andrew Kennedy )

Peter Khoury, the spokesman for motoring organisation NRMA, also said he was unsurprised Mr Barr was ready to intervene.

"Canberra has always been a problem, not just during coronavirus," he said.

"Average prices in Canberra have been stubbornly high for a long time."

Mr Khoury said stations' refusal to drop prices when the wholesale price fell was particularly unfair at a time when many drivers had lost income.

"In this current climate, where there is so much uncertainty in this community, particularly around jobs and the family budget, it is even more important that people are not being ripped off when they fill up at the bowser — and they are being ripped off," he said.

So why are Canberra prices higher?

Mr Barr compared Canberra with Newcastle, a city of comparable size and distance from Sydney, where fuel prices had fallen far more quickly during the pandemic.

He said some ACT retail margins were now double those of stations in Sydney.

A review of pricing last year found some of this difference was justified.

The ACT Independent Competition and Regulatory Commission said it cost notably more to deliver fuel to the ACT.

Retail operating costs were higher, too, which it attributed to "weaker competition in Canberra".

But the commission also found profit margins in the national capital were more than double those in Sydney and towns near the ACT.

Senior commissioner Joe Dimasi said another factor was "the relatively poor visibility of petrol stations in Canberra, which makes it difficult for consumers to compare competing retailers' prices".

Mr Barr acknowledged that a lack of alternative sites was a problem, "partly as a result of past planning decisions".

Chief Minister Andrew Barr said the petrol price reduction in the ACT is "nowhere near enough" ( ABC News )

Stations blame ACT land taxes

The organisation that represents petrol retailers says Canberra prices are justified by the costs of doing business in the city.

Mark McKenzie, the chief executive of the Australasian Convenience and Petroleum Marketers Association, said the main problems were land taxes and property costs.

"The costs are slightly higher in the ACT, you've got a lower volume market and we've got a market architecture that's a bit different to capital cities," he said.

"Those costs, depending upon where you are, can be between double and four times the property cost that a service station will pay in New South Wales."

Mr McKenzie said another factor was the smaller number of independent retailers in the ACT, whose low-cost models pressured the market to drop prices more quickly.

The commission's review of prices also investigated the effects of ACT taxes, and said differences between ACT and NSW prices "may, to some degree, reflect differences in tax systems, including differences in commercial rates".