BUSINESS NEWS - Capping the price of 93 octane unleaded petrol (ULP93) will kill new entrants in the fuel retail sector and has little potential to benefit consumers.
If government really wants to make a difference, it should rather target the margin of oil companies or the fat chunk of taxes and levies government itself has piled onto fuel prices.
This is the warning issued by Sbonelo Mbatha and Mark Harper, co-founders of PetroConnect, a company that assists new entrants to purchase and run filling stations through among other things their PetroConnect Academy.
Read: From petrol attendant to co-owner
Mbatha and Harper were responding to a Department of Energy proposal that the price of 93 octane be deregulated and capped to allow for price competition, as is already the case with diesel.
That would mean that of the three main products sold at filling stations only the price of 95 octane would still be completely regulated.
The proposal is aimed at alleviating the plight of consumers who have been struggling to keep up with rising fuel prices. Government used funds in the Slate Levy Trust Fund to absorb some of the increase in August, but that was unsustainable and was recovered from consumers in October, gobbling up the price decrease that was expected.
The Fuel Retailers Association, representing more than 2 500 fuel retailers, also expressed its concern about the impact of the proposed deregulation and capping of ULP93 on its members.
Mbatha explains that in the current ULP93 price structure, 61% goes to the oil companies, 32% to government in the form of levies and taxes, and only 7% is allocated to the retailer.
Mbatha questions why government’s proposal is only targeting the 7% retail margin and ignoring any possibility of adjustments to the rest of the fuel price.
He points out that the 7% retail margin is, in fact, the retailer’s gross revenue. After covering operational expenses, the real margin upon which discounts could be considered is only about 0.8% or, at current pricing levels, 14c.
“It would be ludicrous to think that consumers will feel any difference in their pockets whatsoever if what retailers have to play with is 0.8% of the total price per litre,” he says.
From the retailer’s point of view there is no room to manoeuvre to give discounts, he says. “We agree that the government should consider means to offer relief to consumers. However, to put that onus on small business owners who are critical to economic sustainability in our country is counter-intuitive to stimulating small business growth.”
Mbatha adds that fuel retailers have traditionally been well established businesses with owners who have been in the industry for years.
New entrants vulnerable
With a new transformation charter being imminent this is changing, and inexperienced and highly geared new entrants will be extremely vulnerable if the department’s proposal is implemented.
Mbatha points out that the deregulated diesel price has led to big truck stops completely undercutting small entrepreneurs. The entrepreneurs cannot compete with the large players on price and merely sell diesel as a service to their customers.
