According to transport expert and Stellenbosch University professor Stephan Krygsman, South African motorists could easily pay R3.50 to R4.00 less per liter for fuel. This amounts to an R158–R180 savings on a 45-liter tank, and an R210–R240 savings on a 60-liter tank.
Speaking to Rapport, Krygsman said the government could lower the price by scrapping the Road Accident Fund (RAF) levy and deregulating prescribed profit margins. The current wholesale margin for fuel is set at 40.5c per liter, while the retail markup is R2.27 per liter.
Krygsman said that if these are lowered and deregulated, competition between garages could lead to a lower price of petrol. He conceded that if garages need to cut costs to reduce their margins, it could lead to retrenchments.
The regulation of the fuel price in South Africa
The regulation of the petrol price in South Africa—with fixed profit margins for wholesale and retail—was instituted to prevent large companies from gaining a monopoly in South Africa, Krygsman said.
It was also to ensure an adequate and stable income for the industry, he explained. This allowed them to plan and invest in infrastructure. Krygsman said the retail price of diesel is not regulated because the former government focused on regular motorists and commuters who mostly used petrol vehicles.
Wits University professor Rod Crompton disagrees with Krygsman’s summary of the reasons but agrees that profit margin regulation on petrol should be abolished. In a report Crompton and three other authors wrote last year, they said the government restricted petrol price competition to ensure better returns for investors, rather than protect consumers from predatory pricing.
Crompton and his co-authors said there is a lack of transparency regarding the determination of certain margins. Detailed information about the regulatory accounting system is kept secret by the Department of Energy, despite policy promising increased transparency.
“This is extraordinary for a number of reasons. Economic regulation is supposed to be in the public interest,” they wrote. Regarding the fact that South Africa’s fuel price remains lower than many other countries, Krygsman agreed but said that monthly transport costs in South Africa are incredibly high.
While countries in Europe and Asia pay less, they have other options such as cheap public transport. They also tend to live closer to where they work, reducing their monthly transport costs.
Krygsman’s proposal to cut the RAF levy and deregulate petrol profit margins comes after the Organisation Undoing Tax Abuse (Outa) released an analysis showing that fuel taxes increased by 126% in ten years. In comparison, the basic fuel price (BFP) increased by less than 50%.
Furthermore, the increase in BFP can be attributed to the weakened rand.
“If you go back to November ten years ago, the price of oil was 31% higher than it is today, but fortunately for us, at that time the rand was a lot stronger,” said Outa CEO Wayne Duvenage.