THE long-term effects of Covid-19 and its lockdowns had the biggest impact on the fuel retailing industry
THE long-term effects of Covid-19 and its lockdowns had the biggest impact on the fuel retailing industry this year with volumes dropping by 80 percent, forcing many fuel station operators to plead for rental relief from landlords and bank holidays with very little or no support from the government, says Fuel Retail Association (FRA) chief executive Reggie Sibiya.
He said on top of that, came the July 2021 riots and looting, which saw the sector losing more than R300 million to looting and property damage.
“The combined Covid-19 and looting cost the industry billions of rands in both revenue and tax collection through fuel levy and road accident fund,” Sibiya said.
According to the FRA, fuel retailing will never be the same again since the Covid-19 pandemic struck.
“Specifically for the fuel sector is significant volume drop as customers get to the habit of working from home with significant reduction on fuel spend or purchases. Less visits to the forecourt also mean reduced income on the convenience stores and other related profit centres,” said the association’s chief.
Other challenges for this sector included labour challenges compounded by rising levels of unemployment and retrenchments amid Covid-19.
However, the FRA said the industry had been taking strain even before the pandemic: margins lagging behind, rampant inflation, compliance costs and the missing elements like credit card costs, which were introduced in 2010 for the Fifa Soccer World Cup and never reviewed, the poor implementation of the RAS (Regulatory Accounts System) model talking to the split on the other element of the margins and the profit margin – the way it was calculated leaving a lot to be desired.
Challenges also included rampant illegal trading contributing to significant volume drops, over and above volume declines due to Covid-19 and unregulated costs like airtime, Lotto and even cigarette sales also being compromised over time, making it tighter to operate the service station business.
The FRA said the major contributors to pump prices were government taxes and the sourcing of product and distribution from global to local markets which in South Africa was reflected as the Basic Fuel price (BFP).
Sibiya said both taxes and BFP contributed 80 percent of the pump price and if anything significant could be achieved by the review, it had to come from these two areas.
Margins along the value chain only contributed 20 percent and carried a variety of small, medium, micro enterprises (SMMEs) from storage, distribution, wholesaling and retailing.
“Any downward reduction will impact significantly on SMMEs’ sustainability, transformation and jobs. Retail opex margin is only 7 percent of the 20 percent (R1.33c) and profit margin only 1.5 percent (30.1 cents) before any clawbacks by Oil Companies.
“If one looks at comparative global pump prices, the difference between oil producing countries (Opec) and net importer countries is glaring and a testimony to the fact that other than government taxes, Opec countries are not affected by global costs of importing product and affected by dollar exchange for their local market supplies.”
The association said price reviews should be done on an informed basis using proper/credible and qualified consultants who would be objective and not be driven by a political agenda that would result in job losses and hurt SMMEs.
“The fact is that of the over R20 per litre of Inland ULP95 pump price, only R1.33c per litre goes towards fuel retailer expenses including wages. So, deregulating the pump price to take away this element would not result in any change of the problem but will definitely result in job losses which are already experienced due to significantly reduced volumes.”
The sector had retrenched 3 658 employees during the pandemic period.
Last week, Finance Minister Enoch Godongwana called for a re-look into the price structure, which currently includes hefty levies and taxes. The regulated fuel prices increased by about 40 percent this year alone, hitting a record high in December, with the inland petrol price rising above R20 a litre.