Calls to deregulate fuel price ‘ignorant’
DEREGULATING the fuel price will not bring prices down but will hurt the already marginal fuel retailers, the industry has warned. “There is now pressure for us to actually cut margins through competition with each other, which is absolutely impossible,” said Reggie Sibiya, CEO of the Fuel Retailers' Association, in opening the association's 2022 conference on Wednesday.
The retail margin is R2,28. If removed, fuel retailers will not survive, he said.
“The people that are calling for deregulation are ignorant. They think that the margin for retailers is a lot to share. There is nothing to share. Actually, we need more in order to sustain our businesses,” Sibiya said.
The comments come as government faces intense pressure to cushion the blow of high fuel costs, which are taking a toll on consumers. Already the state has temporarily cut the general fuel levy to offer some respite.
While some see deregulation as a possible fix, Sibiya said other deregulated markets still suffer the effect of a high oil price, adding that the petrol price in London is currently equivalent to R32 a litre compared with R23.52 in South Africa).
“So it's not only us, it is all over, and we have to now start to realise that there are many things beyond our control,” he said.
Sibiya said several regulations have impacted fuel retailers negatively over the years.
For example, a credit card transaction cost of 42 cents per litre is absorbed by fuel retailers and is not part of the margin provided for through the fuel price structure.
He said that the regulator must apportion the relevant costs in the pump price to enable retailers to be profitable and have a fair return on their investment.
Illegal trading of fuel, where wholesalers are selling directly to the public without the required licences, is also a matter which Sibiya said is “getting out of hand” and stealing sales volumes from retail service stations.
Deregulation cannot happen before the sector's transformation, as cutting margins will hurt new entrants that are highly geared and already struggling to make ends meet.
“Pricing has everything to do with transformation because the fuel business is about margins and volumes. If you bring in new entrants and cut margins, you are actually frustrating transformation," Sibiya said. “That's why ... black people … cannot make it because of the high gearing they have, which is not accommodated for in the margins.”
He noted how a KPMG study commissioned by the association in 2016 showed fuel retailers were under-recovering 12 cents a litre at the time.
Fuel retailers are significant employers in the country, accounting for 83 000 jobs.