Higher petrol prices are bad news for South Africa’s filling stations

As fuel prices continue to rise and the government maintains control over profit margins, South Africa’s petrol stations are under severe pressure to remain viable.

This is according to South African Petroleum Retailers Association (SAPRA) national vice-chair Lebo Ramolahloane, who told Kaya Biz that the latest round of fuel price increases is “very concerning”.

In the first week of May, petrol prices increased by R3.27 per litre, as inland prices rose to R26.63 per litre, while diesel prices increased by R5.27 per litre, jumping to R31.88 per litre.

Ramolahloane noted that the diesel price increase is particularly concerning, as diesel is what moves South Africa’s economy, powering food deliveries, agricultural operations, and logistics networks.

He explained that this creates a pressure point for the economy, as well as concerns for fuel retailers, who do not profit as much as people tend to think.

“To be honest, that’s the misconception that everybody makes in terms of retailers making money or service station owners making money,” he said.

Ramolahloane clarified that before the recent fuel price increases, petrol stations could replenish their tanks for around R1 million, which has since more than doubled to upwards of R2.5 million.

“Practically overnight, we had to find money in order to fill up our tanks because the margins stay the same and it’s regulated,” he said.

Ramolahloane said fuel retailers currently operate on margins of roughly R3.15 per litre, despite diesel prices now exceeding R30 per litre in some cases.

“All that turnover is just excessive risk on our side from the banking aspect of it as well, because we are now banking more in terms of rands per 100 [litres], but we still have the same R3.15 margin,” he said.

He said that this increases pressure on retailers due to the high costs of conducting business, including overhead costs, rising wage costs, and Eskom tariff hikes.

Operating under fine margins

Ramolahloane said that because petrol station margins are very tight, typically between 1% to 5%, retailers are feeling the pain alongside consumers.

He noted that SAPRA often challenges the regulations and formula used to calculate margins, adding that there are ongoing discussions with the Department of Mineral and Petroleum Resources (DMPR).

“The formula itself is actually outdated, and it needs to be updated to the current market and to the current market environment,” Ramolahloane said.

While discussions are ongoing, he said it is difficult to speculate how the formula should be adjusted, especially under current circumstances.

He noted that there are several stakeholders that need to be consulted before any decisions can be made regarding policy changes.

Petrol stations are becoming increasingly reliant on their convenience stores, restaurants, and other services to survive.

“The convenience store plays a vital role in our operations because that’s obviously where the bigger margins are,” said Ramolahloane.

“We’re really trying our best in order to keep up to date and make sure that we keep the lights on and our staff paid.”

He warned that higher fuel prices are reducing the amound of fuel being bought by motorists, who spend fixed rand amounts, rather than filling their tanks completely, causing fuel volumes sold to decline even if turnover rises.

This could force filling stations to introduce cost-cutting measures, which could include reducing working hours for staff should conditions worsen.

“We definitely do not want to let this impact our petrol attendants negatively because they themselves are also experiencing the pressures that every single one of us is experiencing in the country,” said Ramolahloane.

SAPRA is closely monitoring Brent crude oil prices, as well as the developments in the Middle East, in hopes that fuel prices stabilise.

“It’s a huge crisis for us all, and we really hope that everything works out in the Middle East,” Ramolahloane noted.