Western Cape Business News

Send  Share  RSS  Twitter  28 Feb 2011

PETROL PRICE: It's Time For A Re-Think


Recent Western Cape Business News

THE Cape Chamber of Commerce believes it is time that the formula used to calculate retail petrol and diesel prices in South Africa was revised to bring it into line with present day realities.

The way we work out the price of petrol is a legacy of the darkest days of apartheid and we are amazed that it has not been revisited in these more enlightened times,” said Michael Bagraim, President of the Chamber.

 He explained that the formula was negotiated at a time when the country was threatened with an oil embargo and the Government’s negotiating position was very weak.

We have big increases in the prices of petrol and diesel this week and more taxes on fuel were announced in the Budget last week so it really is time to come to grips with this legacy of apartheid.”

He pointed out that price control was generally used to keep prices down but in the case of petrol it was used to keep prices up. This was confirmed by the complete ban on the discounting of petrol by supermarkets. Service stations were also barred from offering incentives to customers to bring in extra business and increase their sales volumes and improve efficiencies.

The whole idea of controlling prices to make them higher than they need to be flies in the face of economic logic, our competition laws and even the Constitution. Why are service stations not allowed to discount petrol? Many of them offer discounts of up to 30 cents a litre on diesel so there is clearly scope for discounted petrol too,” Bagraim said.

The price formula was based on import substitution costs and that meant we also imported European prices skewed by factors like the demand for heating oil in their winter. “If we are to have a controlled price of fuel it should be based on the cost of crude oil landed in South Africa and local refining costs.”

Although the refining costs of diesel were lower than those for petrol it cost more at the pump. “Diesel is essentially an industrial product. It is the fuel of our transport industry and agriculture. Artificially high diesel prices add to the cost of food and public transport and we should be doing everything possible to ensure that diesel prices stay as low as possible,” Bagraim said.  


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