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Deregulating petrol prices in South Africa may be a bad idea

Deregulating Petrol 93 in South Africa may not see the price of the fuel type go down, according to Liquid Fuel Wholesalers Association CEO Peter Morgan.

Deregulation will allow fuel retailers to independently set the prices of Petrol 93 at their stations, and it has been called for by prominent organisations such as the Democratic Alliance and Solidariteit which claims that these retailers will drop prices once the fuel type is deregulated.

We don’t have a clear understanding

In an interview with Cape Talk, Morgan said evidence from other countries where fuel prices have already been deregulated suggests that retailers will not cut prices if the fuel is deregulated as they operate on scant margins as it is.

The prices may not necessarily go up, but “we don’t have a clear understanding of how deregulation is going to affect the economy,” said Morgan.

“We do know, however, if you look around at how the world has gone, it starts at the fringes very very slowly until it collapses in the middle, and market forces will determine when this happens.”

He said local retailers reap R1.34 for operational expenditure (OPEX) with every litre of fuel sold, 68 cents of this going to wages for attendants, cashiers, and admin. Additionally, retailers are under-recovering when it comes to bank charges and services, repairs and maintenance, and rates and taxes which is what the rest of the OPEX margin must cover.

As such, there are few, if any places for regular station operators to cut prices while still operating a profitable business model.

In the fuel retailing business, moving volume is one of the most important aspects of running a station. Therefore, exceptionally busy retailers who pump much more fuel than the benchmark amount may be able to cut prices for Petrol 93 by “a few cents” if it becomes deregulated, said Morgan.

However, this is not feasible for many retailers and Morgan notes that levies and taxes imposed on fuel should be reviewed rather than the possibility of deregulation.

“If I look at the levies and the road accident fund, there’s more than R6 in there. How much can you cut from R1.34 if half of it is going to wages anyway,” he said.


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