Here’s how you lower the fuel price

The Mercury - - BACKGROUND & ANALYSIS - Martin Van Staden

THE ANC and President Cyril Ramaphosa ap­pear de­ter­mined to lower the fuel price – in the midst of rais­ing it – with Busi­ness Tech re­port­ing that the gov­ern­ment is “ac­tively seek­ing ways” to find a so­lu­tion to the prob­lem.

The of­fices of the Free Mar­ket Foun­da­tion have an open-door pol­icy, and if gov­ern­ment is se­ri­ous about fix­ing the mess it has cre­ated, we will wel­come its rep­re­sen­ta­tives with open arms to solve the prob­lem.

A Scot­tish col­league of mine re­cently told me that he finds the si­t­u­a­tion in South Africa ab­so­lutely be­wil­der­ing. Hav­ing lived in 50 coun­tries around the world at some point or an­other, he told me South Africa is the only place he’s ever been where there’s no com­pe­ti­tion in the fuel in­dus­try.

This, of course, is due to one sim­ple rea­son: gov­ern­ment fixes the price of fuel. President Ramaphosa’s as­sur­ances that the fuel price is “beyond the gov­ern­ment’s con­trol” and that South Africa is a “price taker” is sim­ply un­true.

Two months ago, the Au­to­mo­bile As­so­ci­a­tion shared some in­ter­est­ing facts about the fuel price. In April 2018, a litre of 95 un­leaded fuel ar­riv­ing at a petrol sta­tion in Gaut­eng cost R8.93. This is the ba­sic fuel price – de­ter­mined by fac­tors largely out­side of South Africa’s con­trol, with the pos­si­ble ex­cep­tion of cus­tom dues.

Of course, we weren’t pay­ing R8.93 for fuel back then – we were pay­ing R14.22. This is be­cause of the gen­eral fuel levy (R3.37 a litre) and the Road Ac­ci­dent Fund levy (R1.93 a litre) that the gov­ern­ment im­poses on each litre of fuel. Th­ese sur­charges are, nat­u­rally, well within the gov­ern­ment’s con­trol.

For a 50-litre tank of fuel to­talling R711.50, we were thus pay­ing only R446.50 for the ac­tual fuel. The re­main­ing R265 that we paid in April for a tank of petrol dis­ap­peared into the pit of gov­ern­ment in­ef­fi­ciency and cor­rup­tion.

Ev­i­dently, there’s much gov­ern­ment can do. It can lower, but ide­ally abol­ish, both the gen­eral fuel levy and the Road Ac­ci­dent Fund levy. Gov­ern­ment has not taken its road-fix­ing man­date se­ri­ously for some time, and it is quite clear that the money des­tined for that pur­pose goes else­where.

The Road Ac­ci­dent Fund, fur­ther­more, is broke, and has been for sev­eral years. South African con­sumers and tax­pay­ers should not be ex­pected to foot the bill for this in­ef­fi­cient and ar­guably un­con­sti­tu­tional waste of money.

More than that, the gov­ern­ment should re­move it­self en­tirely from the de­ter­mi­na­tion of fuel prices.

We pay ex­actly the same for petrol whether we are buy­ing it from Shell, En­gen, BP or Cal­tex. On the ques­tion of the prod­uct we are buy­ing, there is no com­pe­ti­tion be­tween th­ese fuel fran­chises. One can­not try to win more cus­tomers from the oth­ers by charg­ing less for fuel, be­cause the gov­ern­ment de­ter­mines both the min­i­mum and max­i­mum prices that can be charged for it.

Whereas in the US you can drive a few kilo­me­tres down the road to the next gas sta­tion to pay less for your fuel, in South Africa you are at the mercy of what our rulers in the gov­ern­ment have or­dained from their perch to be the price.

In Amer­ica, at dif­fer­ent times of the same day, the price could be cheaper or more ex­pen­sive be­cause the mar­ket is al­lowed to re­spond to chang­ing cir­cum­stances. Com­bined with the open com­pe­ti­tion in the mar­ket, gas fran­chises will al­ways try and outdo one an­other in at­tract­ing cus­tomers to buy their more af­ford­able prod­uct.

Dif­fer­ent states also have dif­fer­ent con­sump­tion taxes on gas, mean­ing gas prices are never the same be­tween the states.

In South Africa, the mar­ket is pro­hib­ited, by the threat of le­gal sanc­tion, from of­fer­ing us a lower price for fuel, and with our cen­tralised sys­tem of gov­ern­ment and no com­pe­ti­tion be­tween the prov­inces we pay ex­actly the same for fuel ev­ery­where at the coast, and ev­ery­where in the in­te­rior.

South Africans should not ask the gov­ern­ment to stop rais­ing the price, or to lower the price, of fuel. In­stead, we should in­sist that gov­ern­ment leave fuel ab­so­lutely alone. The gov­ern­ment’s ar­bi­trary con­trol of the fuel in­dus­try should be abol­ished in favour of free com­pe­ti­tion and con­sumer-cen­tric en­ter­prise.

Van Staden is a le­gal re­searcher at the Free Mar­ket Foun­da­tion and is pur­su­ing a Mas­ter of Laws de­gree from the Univer­sity of Pre­to­ria


In this 2013 file pic­ture, then US president Barack Obama walks from Sec­tion B, prison cell No 5, where Nel­son Man­dela spent 18 of his 27-year prison term on Robben Is­land. Obama will use his upcoming Nel­son Man­dela Lec­ture to mo­ti­vate a new gen­er­a­tion...

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