Western Cape Business News

Send  Share  RSS  Twitter  27 Jan 2009

ENERGY: Call to Look at Fuel Pricing


Recent Western Cape Business News

THE Cape Town Regional Chamber of Commerce and Industry would like to see the Competition Commission extend its investigation of anti-competitive practices in the oil industry to cover the “fixing” of fuel prices in terms of a formula that is an unfortunate legacy of the Apartheid era.

The investigation follows the admission by SASOL to the Commission that it has discovered competition law contraventions in its gas division.

Mr Jeremy Wiley, President of the Chamber, said many people believed that the formula which determined wholesale and retail fuel prices fell short of the requirements of the country’s competition laws and that it may even be unconstitutional.

The formula, which is based on the cost of importing refined petrol and diesel from Europe and Singapore, was negotiated at the time of an international oil embargo against South Africa.

“In those circumstances the government’s negotiating position was weak and the oil companies were in an extremely strong position. Since then the oil embargo has come to an end and the country now has full access to international markets, but we are stuck with controls and price-fixing formulas that date back to the days when South Africa was the polecat of the world.”

Mr Wiley said the best solution would be the deregulation of the oil industry but if this could not be achieved immediately a good start would be a new formula to calculate petrol and diesel prices.

The present formula was influenced by supply and demand factors in Europe where conditions were completely different to those prevailing in South Africa. One factor was the winter demand for heating oil which, like diesel, came from the “middle cut” of the barrel of crude oil.

Fuel prices (particularly the price of diesel) were of such fundamental importance to food production, transport and the economy as a whole that the country could no longer afford to pay the loaded prices that were, in effect, a legacy of the Apartheid era.

The Chamber views anti-competitive practices as a hangover from the past when vast sections of the economy were controlled by a number of Government-appointed marketing boards which fixed prices. In these circumstances many businesses had little option but get together to plan, for example, agreements on distribution areas to reduce transport costs.

The oil industry was the sole survivor from the era of government control and it was completely out of place in the economy of the new South Africa. “The industry has been protected from competition for far too long and it is time for a complete review of how it operates and how prices are determined.”

Mr Wiley said the deregulation of the industry had been accepted in a Government White Paper as the new policy but it had not been implemented for reasons that were difficult to understand.

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