The cost of petrol and diesel is unlikely to be reduced by the review of the nation’s fuel price calculations.
South Africa has been dealing with high fuel prices for several years now, which has prompted various stakeholders to call for deregulation in an attempt to lower costs for households.
The Democratic Alliance (DA) initially submitted its Fuel Price Deregulation Bill for public comment in July 2022.
However, the party later announced that the bill had been put on hold until 2024, after parliamentary legal services explained that it was effectively a money bill and would therefore need to be introduced by the finance minister.
“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 confirmed that the bill fell through after the end of the sixth parliament, and that there are currently no plans to revive it.
One of the main concerns with altering the way the fuel price is calculated is that it may result in a substantial loss of revenue for the government.
For example, the General Fuel Levy (GFL) currently adds R4.01 per litre to the cost of petrol and R3.85 per litre to the cost of diesel, making it a prime targets for proponents who want to reduce the retail price of fuel.
If the GFL were scrapped, the government would need to find a way to make up for the roughly R90 billion it generates in tax revenue, according to Finance Minister Enoch Godognwana.
The DA previously stated that, if the bill were passed into law, it could reduce fuel prices by as much as R9 per litre.
It argued that doing so would allow for the importing and distribution of cheaper fuel while increasing retail competition.
Not all industry stakeholders held the same view, as the Fuel Retailers Association (FRA) warned in 2022 that deregulating prices could stifle competition and set the country’s fuel sector decades back.
It reasoned that deregulation would be especially harmful for smaller independent forecourt owners who compete with larger companies on slim margins.
FRA CEO Reggie Sibiya argued that external factors are to blame for South Africa’s high petrol prices, including the international price of petroleum products, the dollar-to-rand exchange rate, and shipping fees, which collectively make up around 54% of the number we see at the pump.
Levies and duties made up most of the remaining price, while wholesale and retail margins only comprised roughly 15%.
Unlikely to make a difference
The Organisation Undoing Tax Abuse (Outa) CEO Wayne Duvenage has also raised concerns about the possibility of reducing fuel prices, arguing that the industry’s slim margins make it unfeasible to introduce any meaningful discount.
Another concern over deregulation is that it would only foster competition in large metros, while smaller towns may be exploited by a handful of station owners colluding on the final price.
Despite this, the Solidarity Movement petitioned Parliament for deregulation, arguing that fuel pricing should be entirely up to the market.
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.
Another suggestion has been to put a price cap on unleaded 93, which has been around since 2018 but has yet to manifest in a meaningful way.
This brings everything back to the government’s most recent proposal to review the way fuel prices are calculated.
President Cyril Ramaphosa, Mineral Resources Minister Gwede Mantashe, and Enoch Godongwana have all indicated that they will review the nation’s fuel price formula.
This follows an extensive #ReviewTheFuel lobbying effort from the Automobile Association of South Africa, which contends that a long-term analysis of the fuel price calculation needs to urgently take place.
“All calculations relating to the fuel price should be audited to determine if they are still relevant and appropriate to South African conditions,” it said.
“Continuing with a pricing model because it’s historically the one the country has always used doesn’t make sense.”
The government has provided no updates on how it plans to review the nation’s fuel prices, which means that, for the time being, motorists are at the mercy of the international oil price and the dollar/rand exchange rate.
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