Alternative petrol price model proposed for South Africa

 ·2 Mar 2022

Labour union Solidarity has drafted a parliamentary petition to deregulate the country’s petrol price and lower fuel costs.

Solidarity said that the determination of fuel prices should be left entirely to the market so that healthy competition can prevail for the benefit of consumers.

“While the rest of the world embraces the free market, the South African government is clinging to Soviet thinking that is hurting the economy. Determining fuel prices is one such example,” said  Theuns du Buisson, an economics researcher at the Solidarity Research Institute (SRI).

“It is absurd to treat every filling station in every region in the same way while their immediate market environment, as well as the process of getting the fuel to that point differs. Ultimately, this is to the detriment of the consumer.”

Solidarity said that most other countries leave the determination of fuel prices entirely to the market and where prices are indeed regulated, it is to keep them low.

“Our research shows that, in South Africa, price regulation is keeping fuel prices artificially high instead. This amounts to deception because the state, which was appointed by us to look after our interests, is thus acting contrary to our interests,” Du Buisson said.

“With sky-high unemployment and inflation getting out of control, we can no longer afford a government that is indifferent and insensitive. We must now take action to force the government to act in the interests of South Africans and not in their own. When the price of fuel rises, almost all other products and services also become more expensive, and ordinary South Africans struggle to make ends meet.

While the group acknowledged that several international factors influence fuel prices, it said the government still cannot justify its own additional costs.

“Apart from the exchange rate and the international oil price that currently make up just under half of the final petrol price, all aspects of the petrol price are determined by the state. First, we still have excessive taxes in the form of the fuel levy and the Road Accident Fund levy.

“In addition, the profit of every other role player, from the importer, wholesaler, transportation contractor, secondary storage contractor and ultimately to the filling station owner, is prescribed by the state. Solidarity is of the opinion that this amounts to abuse of power.”

The government has effectively made it unlawful for anyone to compete by offering prices that are lower than that of their competition, it said.

Review planned

The National Treasury has confirmed that it will review South Africa’s fuel price calculations as motorists grapple with record-high petrol and diesel costs.

In its Budget Review published on Wednesday (23 February), Treasury said rising prices affect the competitiveness of domestic firms and households’ disposable income.

“The two largest components of administered price inflation – electricity and fuel prices – increased by an annual average of 8.2% between 2011 and 2021, placing financial strain on households.

“Regular reviews of prices and their underlying methodologies help policymakers understand inefficiencies in pricing models and additional costs imposed on society, and create incentives for competitive outcomes.”

It cited a 2020 research paper that found that a combination of regulatory amendments can reduce the petrol price by 103.82 cents/litre (R1.03), increasing GDP by 0.67 percentage points by 2028.

“These include amendments to the international component of the basic fuel price as proposed by the Department of Mineral Resources and Energy in 2018 – but not yet implemented – and changes to the methodology underlying regulated margins,” it said.

Read: Russia and Ukraine conflict is bad news for petrol prices in South Africa: energy minister

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