AA Supports Move to Deregulate

The AA has supported a call from Pick ‘n Pay Chairman Mr Raymond Ackerman for the deregulation of the petrol price. However, the AA cautions that any such moves should be carefully evaluated because increased competition around deregulated pricing could result in job losses, as well as the closure of marginal fuel stations. “Another important factor which needs to be considered is the way in which petrol is priced in South Africa,” said the AA, “the basis through which government arrives at the wholesale price of fuel in South Africa stems from more than a decade ago. A Singapore spot price for crude oil is still being used whereas South Africa sources all of its crude oil from other parts of the world.

Furthermore, it is important to note that nearly 40% of all fuel in South Africa contains petroleum that has been produced by SASOL. This component has an entirely different cost structure, the results of which can be seen in the increasing profitability of SASOL.”

During 2001, the AA commissioned a study entitled “The South African Petroleum Industry – A Review” with a view to augment similar research done in 1992. The author, Dr Philip Lloyd, is well respected for his knowledge of the petroleum industry.

“In the past the industry was veiled in secrecy and not much has changed in the six years since the study was completed,” said the AA. “The main aim of the study was to supply stakeholders and the public with information regarding the industry.”   Particular attention was paid to the components that make up the fuel price and the effect that deregulation would have on the industry.

The pricing of fuel is still determined by formulae that were either established when South Africa first started producing fuel for itself or were introduced when the country was the subject of severe sanctions. As a result, there are huge and unjustifiable distortions in the pricing mechanisms that are almost certainly not in the long-term interest of fuel users or the economy as a whole.

Fuel pricing also remains focused on the crude oil refining sector, which has been viewed as the price marker. This philosophy is no longer valid, and is seriously in need of review. While government is aware of the general problem, it may not necessarily understand the magnitude of some of the effects and consequently is moving relatively slowly to resolve the anomalies.

The AA believes that the time has come to take two of main recommendations of the study seriously:

  1. Make the Competitions Act applicable to petroleum products
  2. Move towards deregulation of the industry.

In supporting a call for deregulation of the petrol price, it is therefore critical that all of the cost components of our fuel are revised in a transparent manner in order to ensure that the consumer is getting a fair deal on every litre of fuel he or she purchases.

Automobile Association of South Africa (AA)
011 799 1126

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