Australian Competition and Consumer Commission chairman, Graeme Samuel, yesterday leapt to the defence of the ACCC's economic modelling, upon which the Rudd Government has argued that its FuelWatch scheme will lead to cheaper petrol prices.

Mr Samuel said the ACCC's most recent analysis indicated FuelWatch would not lead to higher prices, but to a "statistically significant reduction".

But he said in certain rural areas where there may be only be two competitors, the adoption of FuelWatch may be "inappropriate" because it could lead to potential collusion and cause higher prices in that area.

FuelWatch is being introduced in all metropolitan and regional areas.

But rural towns have an "opt in" provision, under which local authorities will approach the ACCC if they wish to be involved.

Mr Samuel said the ACCC would make recommendations to individual local councils about whether FuelWatch was appropriate in their locations, and the Government would ultimately make the decision.

The ACCC support for the scheme comes despite a leaked cabinet document has revealed that Prime Minister Kevin Rudd's own department cautioned that FuelWatch could lead to "a small overall price increase" in the pump price.

The finance department, the industry department and the department of resources and energy also argued against the scheme, under which service stations will be required to fix their prices each day.

The government admitted a number of departments argued against FuelWatch but said that advice was "overwhelmed" by a counter viewpoint from the ACCC.

Mr Samuel said, based on the West Australian experience, FuelWatch could lead to "a discernible reduction in price of somewhere between just under a cent a litre to somewhere just under 2 cents a litre."

He said ACCC investigations of the Western Australian version of FuelWatch had shown no evidence of the scheme pushing up prices there.