Is it time to deregulate South Africa’s fuel industry?

Is it time to deregulate South Africa's fuel industry?

With petrol and diesel prices recently hiked to their highest levels in history have come renewed calls to deregulate South Africa’s fuel industry and allow the free market to reign.

At the vanguard of this call is the Free Market Foundation, which believes that government should stop fixing the price of fuel in favour of free competition. It’s a call that has been made many times over the years.

Unlike in many fuel deregulated countries where prices vary from forecourt to forecourt, SA motorists pay exactly the same for petrol wherever they’re buying it, as the price is dictated by the law. The only variation is that inland motorists pay a little more than those at the coast, to cover the cost of transporting the fuel from the coastal depots. Diesel prices are only regulated at wholesale level and there are price differences between different forecourts, allowing motorists to ‘shop around’ for the best deal.

Petrol prices went up again in July for a fourth consecutive month to R16.02 for 95 unleaded and R15.80 for 93 unleaded (inland), and R15.43 for 95 unleaded and R15.29 for 93 unleaded (coast).

These are record highs, and have been caused by the combination of a weaker rand, rising global oil prices, and higher fuel taxes.

But fixing this by deregulating the fuel industry and letting market forces prevail wouldn’t be without its casualties.

It would lead to a price war that would almost certainly cause a number of service stations to shut down, particularly smaller and more remote ones that wouldn’t have the economies of scale to compete against their bigger rivals. Apart from the jobs that would be lost at these service stations, fuel could be much more expensive or unavailable outside of the main urban centres. Motorists living in these areas might have to travel further to fill up their cars, and the extra fuel used doing this might well nullify the price-saving of cheaper fuel.

Other ways to ease prices

It’s a complex problem not easily solved. However, while the industry’s still regulated there are ways to reduce the fuel price.

In the wake of the latest hikes and another increase expected next month, President Cyril Ramaphosa recently tasked his ministers to come up with measures to cushion the financial blow to motorists.

He also asked Saudi Arabia, from which SA imports half of all its oil, to produce more oil and therefore affect the supply-demand balance to reduce the oil price. How the Saudis respond to this audacious request is anyone’s guess, but our government does hold sway over a significant portion of the petrol price.

While South Africa imports most of its petroleum from abroad and is at the mercy of internationally-set oil prices and exchange rates, our government does control the one-third of the fuel price that is made up of taxes in the form of the fuel levy and the Road Accident Fund (RAF).

Motorists pay a R1.93 levy per litre towards the RAF plus a general R3.37 levy, and there have been calls from, among others the Organisation Undoing Tax Abuse (Outa) and the Democratic Alliance, to reduce these taxes.

The DA and Outa are planning a joint march from Church Square to Treasury in Pretoria next Tuesday to demand that the petrol price be reduced by at least R1 per litre.

Motorists have long been a convenient cash cow for filling government coffers, but without those road users necessarily seeing a direct benefit for what they pay. The fuel levy goes to a general fund instead of directly to road maintenance, and it has increased by a whopping 165% over the last decade.

Ramaphosa has reportedly ruled out the possibility of decreasing any taxes because of its impact on the budget. However, the funding shortfall could be alleviated by cutting government looting and inefficiency, says Outa, which believes that many of the fuel price tax hikes have been made to cover deficits due to mismanagement and corruption.

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