The proposal to deregulate or review South Africa’s fuel price calculations is unlikely to result in a meaningful reduction in petrol prices.
The Democratic Alliance (DA) initially submitted its Fuel Price Deregulation Bill for public comment back in July 2022.
The party previously explained that it had put the bill on hold until 2024, after parliamentary legal services revealed that it was, in effect, a money bill.
Consequently, the bill would need to be introduced by the finance minister to follow official procedure.
“What this means is we will be proposing amendments to the budget in February 2024,” said then-DA mineral resources and energy spokesperson Kevin Mileham.
More recently, the DA stated that the bill lapsed after the end of the sixth parliament, and that there were no plans to revive it.
One concern with the proposal is that the government would be forced to find an alternate revenue stream to make up for the R90 billion it would lose in the event the General Fuel Levy is scrapped.
The DA once argued that the bill could reduce petrol prices by up to R9 per litre, as deregulation would allow for importing and distributing cheaper oil while encouraging competition between local retailers.
However, not all stakeholders share the same opinion, as analysts and civil society organizations have voiced their own thoughts on the matter.
When the bill was first proposed in 2022, the Fuel Retailers Association (FRA) warned that the move would stifle competition and set the country’s petroleum sector back decades.
It reasoned that deregulation would threaten smaller, independent fuel station owners who competed with large franchises on slim margins.
FRA CEO Reggie Sibiya explained that external factors like the international price of petroleum products, dollar-to-rand exchange rate, and shipping fees accounted for roughly 54% of the fuel price.
In comparison, the wholesale and retail margin only accounts for around 15%, while the remainder comes from levies and duties.
Impact on forecourts
Another group that is doubtful of the bill’s prospects is the Organisation Undoing Tax Abuse, which also raised concerns about the fuel industry’s slim margins.
This, it argued, makes the prospect of significant petrol discounts unfeesible.
An alternate viewpoint is that deregulation will improve competition in large metros, but that smaller towns are likely to be exploited by collusion among the handful of local station owners.
The Solidarity Movement petitioned Parliament for deregulation, arguing that fuel pricing should be entirely up to the market, according to MyBroadBand.
Theuns Du Buisson, the Solidarity Research Institute’s economic researcher, said that price regulation was keeping fuel prices artificially high.
“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,” Du Buisson said.
A price cap for petrol 93
Another proposal to ease the burden on motorists has been to set a price cap on unleaded 93.
Unfortunately, this suggestion hasn’t made a lot of headway since it was first made back in 2018.
More realistically, the government will perform an evaluation of the country’s fuel price calculations to see if any measures can be taken to lower costs.
President Cyril Ramaphosa, Mineral Resources Minister Gwede Mantashe, and Finance Minister Enoch Godongwana have all indicated that they plan to review the fuel price formula.
The plan follows a prolonged #ReviewTheFuel lobbying effort by the Automobile Association of South Africa (AA), which sought to bring about a long-term analysis of each of component that contributes to the retail price of petrol.
“All calculations relating to the fuel price should be audited to determine if they are still relevant and appropriate to South African conditions,” said the AA.
“Continuing with a pricing model because it’s historically the one the country always used doesn’t make sense.”
Unfortunately, a review of this scale is expected to take several months, meaning it will not provide any short-term relief for consumers.
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