‘Set your own petrol price’ – and other alternatives proposed for South Africa’s record-high fuel costs

Parliament will hold a debate on South Africa’s record petrol price increases on Wednesday (15 June) following an official request by the opposition Democratic Alliance.

The discussions are set to focus on the country’s record petrol price hikes and possible interventions to structurally change how the basic fuel price is calculated.

Discussions around petrol prices in South Africa have ramped up in recent months as global oil prices have soared on the back of the Ukraine-Russia war. This has been exacerbated by an inconsistent rand.

Several parties have since submitted proposals on how to cut the petrol price over the long-term – including the government itself.

Government proposals 

The National Treasury detailed its official proposals to tackle South Africa’s record-high petrol prices in March ahead of the announcement that it would be scrapping the fuel levy over the short-term.

In a presentation to parliament on 15 March, Treasury said that it had narrowed down its proposals to four options, with a combination of these proposals likely to be the most effective:

  • A potential one-off reduction of between 3 cents – 18 cents/litre as part of a recommended Basic Fuel Price review could be introduced immediately;
  • A review of the Regulatory Accounting System (RAS) methodology for petrol could result in a significant decrease of R1.03 cents/litre by 2028. However, this will take significantly longer to implement than other measures and investigations need to take place to fully understand the changes that can be implemented.
  • Revising the Road Accident Fund Levy to make up a lower total of the current Basic Fuel Price. Currently, National Treasury-regulated levies account for 30% of the total pump price. Treasury said a reduction in the RAF levy should be possible as the Road Accident Fund sees operational changes and improvements over the next three years.
  • Consideration should be given to a fuel price cap, although this will also require significant investigations will be required first.

These proposals are the most likely to gain traction in South Africa going forward as they have received support from the ruling ANC and government lawmakers.

DA calls for deregulation 

The Democratic Alliance has announced plans to introduce a new private members bill to parliament that will de-regulate the fuel sector.

The opposition party said the focus of the bill will be to amend the existing Petroleum Products Act – specifically provisions in section 2 of the legislation which deals with the regulation of the fuel sector by the minister of energy.

“The DA will also ensure that the Competition Commission will keep a close eye on the market and to ensure that price gouging does not occur, particularly in rural and small towns where competition may not be fully developed. This will ensure that in regions where competition may be low, fuel prices may not exceed an unreasonably high level,” said the party’s Kevin Mileham.

“When the industry is de-regulated, competition among wholesalers and retailers will be increased. This should result in lower pricing at the pump as retailers will be allowed to compete on price to attract customers, which would be a great relief for South African motorists.”

Unions also want deregulation – but fuel retailers don’t want a ceiling

The Congress of South Africa Trade Unions (Cosatu) has also called on the government to extend its fuel price tax relief beyond July and consider deregulation as a long-term option.

“There is an urgent need to deregulate the fuel price to allow competition, and the re-submission of the Road Accident Fund and Road Accident Benefit Scheme Bills at parliament to place the Road Accident Fund on a more sustainable financial path and lessen the need for it be bailed out through fuel levy hikes.”

The Fuel Retailers Association however has cautioned against a proposal to ‘deregulate’ the country’s fuel price.

Deregulation is expected to allow retailers to compete on price and offer motorists discounts and special offers to fill up at their stations. However, the association warned that the change could have to opposite effect of promoting competition, and ultimately set the country’s fuel sector back decades.

The association’s chief executive Reggie Sibiya said the move will effectively destroy the transformation of the sector and prevent the emergence of new fuel retailers.

Sibiya said that fewer than 20% of the country’s petrol stations are owned by black South Africans, and a move to cut fuel margins further would hit these owners the hardest.

He added that the planned proposal did not amount to ‘full deregulation’ which would allow the country’s petrol stations to set any price they want for fuel. Instead, the move to introduce a petrol price ceiling was the worst form of regulation and akin to a ‘nazi regime’ as it does not take into account all of the additional margin costs that fuel retailers have to pay, Sibiya said.

“It’s a killer  – you want to kill businesses this is what is being proposed here. We did say in a 2018 proposal that this is not going to work and we are surprised that it is being introduced now in an opportunistic way, taking advantage of rising fuel prices.”

AA wants a full review 

The Automobile Association (AA) of South Africa has called for a general review of how the country’s petrol price is calculated – including the incorporation of taxes.

“Government must now initiate a review of the fuel price: to examine all the components that comprise a litre of fuel, establish their continued relevance as part of the fuel price, and to determine if the calculations used are still correct,” it said.

“Such a review is long overdue and the longer government delays getting this started, the longer it will take to find sustainable solutions.”

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‘Set your own petrol price’ – and other alternatives proposed for South Africa’s record-high fuel costs