Motorists expecting a price war at petrol stations after the government proposed a new price cap on 93 unleaded will be disappointed, as there won’t be significant savings available.
So says Reggie Sibiya, CEO of the Fuel Retailers Association (FRA), who believes that though drivers will be able to shop around for better prices, they could only expect very marginal discounts as petrol stations have small profit margins to play with.
He was reacting to energy minister Gwede Mantashe gazetting a notice last Friday proposing a price cap on 93 octane petrol, giving the public 30 days to comment.
The government has been under pressure to deregulate fuel prices after constant fuel price hikes that have an impact on consumers. At the beginning of July, a litre of petrol was hiked to over R26 for the first time, with 93 unleaded costing R26.30 and 95 unleaded priced R26.74 in Gauteng.
Currently the retail price of petrol is set by the government and it is illegal to sell petrol at any other price. A price cap would allow fuel retailers to discount prices of 93 unleaded, allowing motorists to shop around for the best deal as they currently do for diesel. The wholesale price of diesel is regulated, but not the retail price, and can vary by over R2 a litre between retailers.
However, motorists won’t experience those kinds of differences in paying for 93 unleaded, says Sibiya.
Government has maintained unnecessary control over the fuel price for too long, hindering competition in the fuel sector, which would result in lower prices at the pump and more innovative selling methods by fuel retailers.
— Kevin Mileham, DA shadow energy minister
External factors such as the dollar-based price of petroleum products, the rand/US dollar exchange rate and shipping costs account for about 54% of the basic fuel price, while levies and duties account for 27% and wholesale and retail margins around 15%.
In theory, the price of 93 unleaded could vary by up to R2.28 a litre, which is the retail margin assigned by government, but most of that goes to rental and operational expenses, with only 31c set aside for profit — and Sibiya doesn’t expect petrol stations to be in a position to discount the latter by much, if at all.
As a first step towards possibly deregulating SA fuel prices as other countries have done, government’s proposed price cap for now applies only to 93 unleaded, which accounts for about 20% of petrol sold nationally and a higher percentage of inland fuel sales (93 petrol is not sold at the coast).
DA shadow energy minister Kevin Mileham welcomed the proposed price cap and says the intervention does not go far enough.
“Government has maintained unnecessary control over the fuel price for too long, thereby hindering competition in the fuel sector, which would result in lower prices at the pump for consumers, and more innovative selling methods by fuel retailers.”
The DA will be tabling a Fuel Deregulation Bill in parliament shortly. If it gets passed into law, the market would take control of the prices, allowing people to import cheaper fuel, wholesalers to distribute cheaper fuel and retailers to compete on the basis of price.
Sibiya warns that deregulating the industry could affect profitability, placing in jeopardy about 83,000 jobs at 4,800 retail service stations. The FRA argues that deregulation wouldn’t necessarily bring down fuel prices, referring to the UK, where the sector has been deregulated yet fuel prices continued to increase.
How much more are we paying?
It costs about R400 more to fill a small hatchback like a Volkswagen Polo Vivo with a 45l-fuel tank than it did one year ago. It costs over R600 more to fill a BMW X3 with a 65l petrol tank.
SA’s fuel prices are adjusted monthly on the basis of international factors such as crude oil import and shipping costs and local factors such as duties and levies. Fuel prices have risen to record levels this year, because the price of crude oil had risen and the rand has weakened.
To ease the burden on motorists, government introduced a two-month R1.50 reduction in the fuel levy in April and May, which was then adjusted to 75c/l until August 2, after which it will be withdrawn.
Despite the return of the full fuel levy, petrol and diesel prices are expected to respectively drop by around R1.25 and 85c next month due to lower international petroleum prices.
93 vs 95 octane petrol
Driving in Gauteng requires the use of 93 octane petrol, but this changes to 95 octane petrol when at the coast. This is due to atmospheric pressure, which is lower in Johannesburg compared to Durban.
The average vehicle won’t obtain any improved engine performance when using the more expensive 95 octane petrol in Johannesburg. The AA recommends that unless your engine is turbo or supercharged, you should choose 93.
If in doubt, consult your owner’s manual to ensure you’re filling up with the optimal type of fuel for your particular car.
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