Treasury wants to deregulate the petrol price - but an analyst believes this will not bring cheaper fuel, only more price volatility
- In a policy document, the National Treasury proposed that the fuel price be deregulated.
- South Africa’s fuel price is currently calculated monthly based on overseas oil prices, despite Sasol producing locally.
- An analyst believes that deregulation will only increase price volatility for consumers.
- Visit Business Insider SA's homepage for more stories.
The deregulation of the petrol price may not mean cheaper fuel prices - just more volatile ones, an analyst predicts.
The National Treasury, in a discussion document released on Tuesday afternoon, proposed the deregulation of the country’s fuel price as one of the many measures proposed to stimulate economic growth.
Treasury wants regulation of the petrol price to be reviewed, “particularly in terms of spot price benchmarks and where regulation has purposefully supported incumbents such as Sasol”.
The basic fuel price is currently calculated on a monthly basis based on the oil price and costs associated with shipping petroleum products to South Africa from the Gulf states, and Singapore.
This means that companies such as Sasol are paid a price for its fuel equal to how much-imported fuel would cost, even though Sasol manufactures locally.
But Graeme Körner, director and portfolio manager at the asset manager Körner Perspective, believes removing the oil-price benchmark won't make much difference to the price. He thinks that the current fuel price is close to the price it would’ve been if it was market-driven.
“The predominant method Sasol manufactures petrol is by refining the oil importers import from places such as the Middle East and Asia,” Körner told Business Insider South Africa.
“Sasol, therefore, like all fuel importers, is highly depended on changes in overseas oil pricing.”
Körner believes companies such as Sasol and other oil importers will, however, benefit by deregulation as they’d be able to immediately adjust their prices when the oil price changes. Currently, prices are fixed once a month. If the petrol price is deregulated, the prices would react to oil price movements much quicker.
“In five to ten years from now, I don’t think deregulation would have a big impact on consumers - except that they’d be more exposed to price volatility,” Körner said.
Pick n Pay founder Raymond Ackerman has long argued for the deregulation of South Africa’s fuel price as it will allow retailers to offer discounts, and therefore increase competition.
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