If the COVID-19 pandemic has taught the world anything, it is the disastrous consequences of a disrupted global supply chain.
Against this backdrop, the Commonwealth Government introduced the Fuel Security Act 2021 (Cth) (Act) and the Fuel Security (Minimum Stockholding Obligation) Rules 2022 (Cth) (Rules) to strengthen Australia’s fuel security.
The Act and the Rules, enforced by the Department of Climate Change, Energy, the Environment and Water (Department), established a minimum stockholding obligation (MSO) for major importers and refiners of certain fuels.
The regime commenced on 1 July 2023, but a raft of changes came into effect on 1 July 2024.
Who is required to comply with the minimum stockholding obligation?
Not all entities in the fuel supply chain are subject to the minimum stockholding obligation. The regulations apply to regulated entities (such as Australian companies, trusts, and foreign companies whose core trading activities are carried within or in connection with Australia):
- who import or refine an MSO product (gasoline, diesel, or kerosene that can be used and sold as jet fuel); or
- are over minimum quantity thresholds.
‘Import’ is defined under the Act to include the act of importing an MSO product for home consumption.
Fuel customers and end users should also be aware of the MSO regime as the Rules provide that an entity may also be deemed to have ‘imported’ an MSO product if it enters into an arrangement with another entity to import the fuel on its behalf.
What are the trigger thresholds?
If you are a fuel importer or refiner, you will need to check whether the quantity of the fuel products you import or refine each calendar year exceed the relevant trigger thresholds.
Currently, the trigger thresholds are, per calendar year:
- Gasoline – 200 megalitres.
- Diesel – 250 megalitres.
- Kerosene – 250 megalitres.
There are also anti-avoidance provisions which allow the Department to reduce each of the thresholds to 10 megalitres if it believes that an entity has attempted to avoid the thresholds.
If you exceed the above thresholds, you will likely receive a notice from the Department triggering your minimum stockholding obligation. Once a party has been issued a trigger notice, it will generally continue to be subject to the MSO until the Department is satisfied that it has ceased all MSO activities in relation to the product.
What are your responsibilities?
If you have received a trigger notice from the Department, you must hold a designated baseline level of fuel stocks on ‘obligation days’, and such stock must not be deemed to be excluded under the Act. Stock will be excluded if it is held in a service station, retail store, road tanker, seagoing ship (for the purpose of powering the ship) or if it does not meet other standards.
From 1 July 2024, the baseline level stocks are:
| Product | Target days |
|---|---|
| Importing - gasoline | 27 |
| Importing - diesel | 32 |
| Importing - kerosene | 27 |
| Refining - gasoline | 24 |
| Refining - diesel | 20 |
| Refining - kerosene | 24 |
There are other obligations, including:
- Reporting: You must notify the Department of your annual quantity estimates and your intention to either temporarily or permanently commence/cease importing/refining activities.
- MSO compliance plan: You must prepare and comply with an MSO compliance plan which outlines your organisational structure, a list of key personnel and detailed procedures for managing each MSO activity, compliance obligations, record keeping and how you will manage future outages.
Can someone else assume my MSO responsibilities?
The Act allows the Department to, either by application or at its own initiative, permit another entity to assume your MSO responsibilities partially or fully. However, neither the Act nor the Rules specify the circumstances in which the Department may make this determination.
How can we help?
HWL Ebsworth Lawyers has a dedicated Transport Group with experience in fuel stockholding and supply agreements who can assist you with MSO compliance.
Please do not hesitate to contact us if you would like more information about the services we offer.
This article was written by Jayne Heatley, Partner, and Jerry Zhan, Solicitor.
