R9-per-litre fuel surcharge for South Africa’s petrol stations

As a result of global oil supply uncertainty, some of South Africa’s fuel retailers have been hit with additional fees by fuel suppliers like Engen.

TopAuto previously reported that Engen started imposing surcharges on certain commercial customers, after which a local retailer contacted the publication and shared the extent of the surcharges.

The source, who asked to remain anonymous, shared with TopAuto that surcharges have been in place since 5 March, when they informed a representative at the Liquid Fuels Wholesalers Association (LFWA).

Communication from Engen owner, Vivo Energy, shows that surcharges on diesel, paraffin and petrol hit the Wholesale List Price (WSLP) plus an additional R5.25 per litre for petrol, R8.60 for diesel, and R10.75 for paraffin.

These price changes are applicable only to fuel retailers who are spot, or non-contract, customers.

“The knock-on effect is that our customers did not feel any pre-increase pain, but I understand that several others did and subsequently have laid similar complaints,” said the source.

News24 obtained similar information regarding surcharges, in which Engen outlined that the surcharges were necessary since the Middle East conflict disrupted traditional shipping routes.

Engen said it was forced to source replacement cargoes from alternative regions, increasing transit distance, times, and costs, which it said affected all major fuel retailers.

The fuel supplier told News24 that these temporary surcharges would apply to “certain customer segments”, not retail customers or the regulated pump price of petrol.

“Engen remains fully compliant with regulated pricing frameworks, noting that while petrol prices are regulated, diesel prices are deregulated at the retail level and may be set by individual dealers in line with prevailing market conditions,” it said.

TopAuto reached out to Engen regarding the surcharges, but has yet to hear back from the fuel supplier.

Looking at the bigger picture

South Africa’s petrol prices are heavily regulated, while diesel prices are much less so, encouraging competition between retailers, but also leaving consumers open to major price fluctuations.

To understand the situation around the surcharges better, TopAuto reached out to the LFWA after the situation was reported to them.

The association’s CEO, Peter Morgan, told the publication that petrol prices are regulated at the pumps thanks to the Regulatory Accounting System (RAS) conducted by the Department of Mineral and Petroleum Resources (DMPR).

This system sets all of the capital expenditures (CapEx) and operating costs (OpCost), meaning the imposed surcharges are not in the RAS and should not be passed on to retailers.

“Diesel, on the other hand, although the same secondary storage and distribution costs are used for both products in RAS, does not have a regulated pump price but has a recommended wholesale margin,” explained Morgan.

“Diesel, therefore, in the commercial markets has traditionally been a wholesale price less a rebate pricing environment.”

When asked if the surcharges could be seen as a form of price gouging, Morgan explained that there needs to be an understanding of the different ways of doing business in the diesel markets.

Traditionally, retailers and suppliers agreed to long-term fixed-term contracts with the pricing fixed and linked to the recommended wholesale price.

However, a new agreement known as “spot pricing” has developed over the last few years, where retailers are offered a “take it or leave it” daily price.

The spot price takes advantage of any price decrease during the month without having to wait for the monthly government price change, while the fixed-term contracted price does not,” explained Morgan.

“We have seen a decrease in many of the last 24 months – hence the growth in this spot price buying.”

He further noted that with this type of agreement, fluctuations should be expected, though through contractual agreements, prices and quantities are agreed to beforehand.

“It appears that the smart guys use a mixture of both prices,” said Morgan.

The DMPR and Competition Commission have on several occasions made it clear that they support both agreements.

Morgan said there are lessons to be learned in the situation, especially where the security of supply is involved in the buying decision, adding that security of supply should be fundamental in the buying decision.

Considering the current state of inconsistent supply and unpredictable price changes, Morgan explained that there are measures that need to be put in place.

“What we need is a pricing mechanism that minimises hoarding and panic buying before large price changes, which have been creating an artificial shortage and disrupting the supply chain,” he concluded.