Fuel retailers eager for pricing review — but with some caveats

Fuel retailers say they would welcome a government review of the fuel pricing methodology after years of inaction.

Speaking to Business Day on the sidelines of a Fuel Retailers’ Association conference on Wednesday, CEO Reggie Sibiya, said members were concerned about the impact of some suggested reforms.

In the interests of certainty the industry would welcome the government following through on talk of  a comprehensive review of the formula, he said.

The petrol price increased by R1.71/l and diesel by R2.84/l from Wednesday. The department of mineral resources & energy (DMRE) said the increases were the result of higher oil prices and the depreciation of the rand against the dollar.

Sibiya said the increases would be of little benefit to fuel retailers whose recovery margins on petrol are regulated. Moreover, fuel sales tend to suffer when prices go up, he said.

In last year’s the Budget Review document, which was published together with the 2022 budget, Treasury said it and the DMRE would review calculations for the fuel price methodology.

“A comprehensive review of the fuel price could significantly reduce costs in the economy,” the Treasury said.

Aspects for review included amendments to the international components of the basic fuel price, and taxes and levies included in the pump price, which Treasury said had more than doubled as a share of the total fuel price since 2012. The Road Accident Fund levy, for example, was being considered for scrutiny.

Sibiya said there has been talk of changing the methodology for calculating retail margins by applying a maximum price instead of a regulated one.

“We don’t believe that’s the right way to go,” he said “Prices must either be regulated or deregulated. If the government wants to force retailers to compete by imposing maximum pricing it will kill businesses and jobs.”

Current retail margins means fuel retailers are under-recovering, Sibiya said. On credit card transactions, for example, they were under-recovering by about 43c per transaction.

“We don’t believe [maximum pricing] is the right solution and we are very concerned about the impact this can have on the industry,” Sibiya said. “We are busy driving transformation and there are a lot of new black entrants who come into this business with high debts and now government is talking about reducing margins.”

He said a better option would be to deregulate petrol sales, as is the case diesel, which would enable fuel retailers to determine their margin based on input costs.

“This will enable fair competition, which does not force retailers to compete at a particular price,” Sibiya said.

erasmusd@businesslive.co.za