The Fuel Retailers Association has issued a strong warning against the proposed deregulation of South Africa’s petrol price, cautioning that the move could have unintended negative consequences for the fuel retail sector. While deregulation is expected to allow filling stations to compete on price, offering discounts and promotions to motorists, industry experts believe the change could, in reality, stifle competition and set the sector back decades.
The Impact on Transformation and Small Retailers
Reggie Sibiya, chief executive of the Fuel Retailers Association, has expressed concerns that deregulation could be detrimental to the ongoing transformation of the industry. He highlighted that currently, fewer than 20% of petrol stations in South Africa are owned by black entrepreneurs. Further cuts to fuel margins could disproportionately affect these businesses, making it even harder for emerging retailers to compete with larger, well-established fuel brands.
Sibiya also clarified that the proposed change is not a full deregulation, where filling stations would be free to set their own fuel prices. Instead, the plan to introduce a petrol price ceiling could create a situation where independent retailers struggle to cover additional operational costs, forcing many out of business. He criticised the timing of the proposal, arguing that it appears to take advantage of rising fuel prices rather than providing a sustainable solution for the sector.
Finance Minister Enoch Godongwana recently explained that complete fuel price deregulation could only occur once the National Treasury finds a way to recover the R90 billion loss the government would face if fuel levies and taxes were removed in one go. One of the options under consideration is increasing motor vehicle licence renewal fees to help fund the Road Accident Fund, which currently relies heavily on revenue from fuel levies.
Godongwana indicated that once these financial hurdles are addressed, true market-driven competition could be introduced, potentially lowering petrol prices for consumers. However, without a clear transition plan, the introduction of partial deregulation could place undue strain on retailers already operating with tight margins.
Potential Market Competition and Retailer Impact
Wayne Duvenage, chief executive of the Organisation Undoing Tax Abuse (OUTA), noted that deregulation would allow fuel stations to openly display their pricing and could lead to retail giants such as Pick n Pay entering the fuel market. However, he warned that margins in the fuel retail sector are already slim, limiting how much retailers could realistically discount fuel prices.
While competition could lead to minor price reductions, there are concerns that larger corporations could manipulate prices, consolidating market power among a few dominant players. This could result in small independent retailers being pushed out of business, ultimately reducing consumer choice and limiting the intended benefits of deregulation.
The debate around petrol price deregulation remains contentious, with industry leaders, government officials, and consumer advocacy groups weighing in on the potential risks and benefits. While increased competition may provide some advantages, a rushed or poorly planned approach could threaten the viability of many small businesses in the fuel retail sector.
As discussions continue, fuel retailers and investors should stay informed about potential policy changes and assess how deregulation may impact their operations. The future of petrol pricing in South Africa remains uncertain, but ensuring that all stakeholders are considered in the decision-making process will be crucial to maintaining a stable and competitive fuel retail market.
Some of the Facts and Figures on Fuel Price Deregulation in South Africa
Deregulation Proposal and Potential Savings
- The Democratic Alliance (DA) proposed fuel price deregulation, estimating that it could reduce fuel prices by up to R9 per litre.
- The Fuel Price Deregulation Bill was submitted for public comment in July 2022 but was later classified as a money bill, meaning only the Minister of Finance can introduce it.
- The DA plans to propose amendments to the budget in February 2024 to move the process forward.
Government’s Fuel Price Cap Proposal
- In July 2022, the Minister of Mineral Resources & Energy, Gwede Mantashe, gazetted a proposal to cap the price of 93-octane petrol, which accounts for 20% of national petrol sales (sold mainly inland, not at the coast).
- This would allow fuel retailers to offer discounts on 93-octane petrol, similar to how diesel pricing currently works.
- The government received over 400 public submissions, but nearly a year later, the proposal remains under review with no confirmed timeline for a decision.
Challenges to Price Deregulation
- The Fuel Retailers Association (FRA) warns that motorists should not expect major savings if deregulation occurs.
- Retail margins are small, with fuel station owners earning R2.42 per litre, most of which goes to rent and operational expenses, leaving little room for significant discounts.
- External factors, such as global oil prices, the rand-dollar exchange rate, and shipping costs, make up 54% of the fuel price, while taxes and levies account for 27%, and wholesale and retail margins contribute 15%.
Recent Fuel Price Trends
- As of May 2023, petrol users were paying about R1.50/l more than in May 2022, reflecting a 7% increase in petrol prices over the past year.
- Diesel prices have decreased over the same period:
- Inland diesel price dropped from R21.99/l to R20.15/l.
- Coastal diesel price fell from R21.34/l to R19.43/l.
- Fuel prices are adjusted monthly based on two main factors: the rand-dollar exchange rate and international petroleum prices.
The deregulation debate continues, with the government and stakeholders weighing its potential benefits and risks. While competition could offer some relief to consumers, industry experts caution that price reductions may be limited due to structural costs and operational constraints. The final decision on deregulation remains pending, with key discussions expected in February 2024.
For petrol station owners and franchisees, the introduction of deregulation, whether partial or complete, poses both risks and opportunities. On one hand, competition could lead to discounting strategies and dynamic pricing models, allowing retailers to attract price-sensitive customers. However, the narrow profit margins in the fuel retail sector mean that smaller, independent operators may struggle to compete with larger retailers that have stronger financial backing. Franchisees under major brands such as Shell, BP, and Engen may benefit from their parent companies’ ability to negotiate better wholesale fuel prices, while independent retailers could face rising operational costs and potential market exits. As discussions continue into 2025, petrol station owners must remain agile, closely monitor regulatory updates, and explore ways to diversify revenue streams—such as investing in convenience stores, quick-service restaurants, and electric vehicle (EV) charging solutions—to safeguard their businesses against market volatility.
