New petrol pricing move fuels debate
New petrol pricing move fuels debate
A big shake-up in the structure of the petrol price in South
Africa will take effect this year, but the move is not expected to offer
much relief to cash-strapped motorists. South Africa's highly regulated
petrol price is influenced by supply and demand for petroleum products
in international markets, combined with the rand/dollar exchange rate.
On March 5 consumers felt the full effect of these factors when the
pump price jumped to a record high of 81 cents a litre. But the fuel
component is only about 65% of the price that motorists pay. The
remaining influences are linked to margins for intermediaries such as
wholesalers and retailers. Wholesalers are mainly the big oil companies,
which often also own petrol stations. Retailers operate the petrol
stations. There are about 5 000 retailers countrywide, but only 30% own
the facilities outright.
The remainder are servicing loans or leasing the sites from
wholesalers. Although the petrol price is regulated at the retail level,
the diesel price is not. There have been calls for regulations to be
used to set maximum petrol prices and also to allow retailers to cut the
price as they can do in the case of diesel. However, this reform is not
under consideration by the energy department. (See "Transformation key
to liberalising the sector"). Concern among retailers The regulatory
accounting system (RAS), which is now partially in place, will be fully
implemented in December.
The system, which is based on assets, is used to determine margins
for wholesale, storage, handling and distribution. Although there is
concern among some retailers that wholesalers will take advantage of the
system, the energy department has threatened to impose more regulations
should stakeholders not play ball.
The RAS seeks to introduce transparency into the market as well as
root out inefficiencies and uncontrolled costs. The system has been
phased in over the past two years and the final measure — a decrease in
the wholesale margin and an increase in the retail margin — will be
implemented in December. The claim is that the new formulas will benefit
consumers in the longer term. The current structure is said to
encourage over-investment in petrol stations and inflate marketing and
operating costs.
The point of the restructuring is twofold — to ensure that there is
no duplication or cross-subsidisation of costs and to make returns on
investment more transparent. The intention is to favour retailers over
wholesalers or those with more assets. Margins were previously
determined by aggregated costs submitted by wholesalers and retailers,
meaning that motorists paid for inefficiencies in the value chain.
The new system will benchmark all the costs so that there will be no
room to recover extra operational or marketing expenses. It will also
ensure parties are not rewarded for over-investing in assets as they had
done previously. But, contrary to expectations, retailers are deeply
concerned about the new margins. Reggie Sibiya, chief executive of the
Fuel Retailers Association, said there were potential effects for
retailers and small businesses were particularly vulnerable. Under the
old system, wholesalers enjoyed "double dipping", Sibiya said. The
wholesale margin not only provided a return on assets, but oil companies
also profited through the rentals of their petrol stations...
To read more go to:
http://mg.co.za/article/2013-0...
-Lisa Steyn is a business reporter at the Mail & Guardian.