Greasing the wheels
Can government really cap the price of 93-octane petrol?
● A government plan to cap the price of 93octane petrol is gaining momentum but the proposal may benefit consumers only from next year, a department of energy official said this week.
Energy minister Jeff Radebe — who intervened to limit a price hike in September — caused a stir a week ago when he revealed in a post-cabinet briefing that the state was considering a monthly cap on the price of unleaded fuel instead of the current regulated price.
Fuel prices have risen more than 20% over the past seven months, due to higher international oil prices and a weaker rand, which has increased the cost of oil imports.
Allowing fuel companies to set their own prices under this state-mandated maximum could usher in greater competition. The price of 95 octane would not be affected.
Robert Maake, director for fuel prices in the department of energy, said this was the first time such a proposal had been made and there were many unknown factors, including exactly how this would benefit consumers. “We are also not sure … We cannot guarantee that consumers will benefit.”
Maake said this was why the department had begun consultations with the industry, which were subsequently leaked to the media.
The fuel sector was asked to respond by Thursday but Maake said some industry players and bodies requested extensions on the deadline to allow them to conduct road shows on the matter.
Major fuel companies indicated this week that they were co-operating with the government but emphasised that the plan had to be approached with caution.
Engen said any change to the regulated retail prices of 93-octane petrol “should be comprehensively evaluated”. Sasol said its engagement with the department was about whether maximum retail prices could stimulate demand for the 93-octane grade “and in so doing reduce octane wastage and save consumers money”.
Jabu Ndlovu, head of strategy and transformation at BP Southern Africa, said any substantial change in policy, such as this proposal, had to be properly considered, with broad stakeholder engagement to ensure that the consequences of the proposed change were fully understood and that an informed decision was taken.
Total SA indicated outright that it supported the proposal.
Maake said there would be no substantial deviation from current policy on how fuel prices were calculated. “The only difference now is that we are publishing a maximum price [for 93 octane].”
The fuel price formula at present consists of the general fuel levy, Road Accident Fund levy and basic fuel price, which contains freight and insurance costs, cargo dues, storage and financing. A fourth component is wholesale and retail margins and distribution and transport costs.
Should the plan lead to an unexpected demand for 93 octane, the industry was in a position to “meet whatever demand in future”, Maake said, adding that it was only capacity for production of 95 octane that was limited domestically.
The downside for companies that are un-
[Liberalising the fuel industry] is the kind of thing we should do when we are not under pressure [from high prices] Avhapfani Tshifularo
SA Petroleum Industry Association executive director
able to lower the price of 93-octane petrol due to pressure on their margins was that “if you can't compete at a lower price, you lose your market share”, Maake said.
Avhapfani Tshifularo, executive director of the South African Petroleum Industry Association, said the body understood that the department hoped “competition will make 93-octane grade prices competitive and provide motorists with the opportunity to shop around for the best price”.
Tshifularo said he could not comment on the specifics of the proposal as it was a competitive matter, except to say the local market could readily supply low-octane petrol grades such as 93, but not 95 octane.
According to data from the department of energy, about 2.4-billion litres of 93-octane grades are consumed in SA annually.
Tshifularo said the estimated industry revenue from 93 octane was about R30bn a year.
He said if the government wanted to liberalise the fuel industry, as it had aimed to in a 1998 white paper on energy policy, these were “the kind of things we should do when we are not under pressure because right now it seems as if we are just responding to high fuel prices. It’s something that we need to do well and advise people in advance of the changes that are coming, properly educate people about what the changes mean for the future.”
Maake said draft regulations would be drawn up and public comment sought before the policy was changed, followed by a promulgation process, which could take 60 days.
“It’s not something that will happen now. It will happen next year,” he said.