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FRA fights for margins

Oct 01 2017 06:00
Lesetja Malope

Johannesburg - The Fuel Retailers’ Association (FRA) is dragging the department of energy to court to have the regulation of retail margins extended to the rest of the profit thresholds.

FRA CEO Reggie Sibiya told City Press that the organisation had filed court papers in its bid to force the energy ministry to regulate the various thresholds along the fuel supply value chain.

Speaking to City Press on the sidelines of this week’s FRA conference, held at Nasrec Expo Centre in Johannesburg, Sibiya said the industry’s biggest challenge remained the erosion of profit margins.

“For us the biggest issue is eroding profit margins with time. Margins are eroded in various ways. We have had, for example, credit cards come into our business and along with this, the high interchange fees. These make buying fuel with cash cheaper than doing so by card.”

Sibiya added that the FRA thought it unfair that the energy minister had regulated the pump price but not the other margins.

“We believe that, as part of protecting small business, the department must consider regulating the margins,” he said.

“The pump price is regulated. The build-up to the pump price starts with the refinery gate price, and then [progresses to] the storage margin for those people who provide storage for the fuel. There is also the distribution margin and the wholesale margin.

“The storage, distribution and wholesale margins go to the oil companies. After the wholesale margin comes the retail margin, which is a return on operations. So, because oil companies have influence, if they want five cents from the retail margin, they just take it as it is not regulated – despite the energy minister having determined the price. That is why we are going for a court case against the department of energy.

“It is on the court roll and we are waiting to hear the date of the hearing,” he said.

Sibiya pointed out that oil companies got a lot from the margin – even a cut from the regulated retail margin as capital expenditure for owning the infrastructure in various operations.

He said that the FRA was not planning to discuss the provision of self-service stations, as was the norm in developed economies. It opposed setting these up as it would result in job losses.

“There is a myth which needs to be corrected: namely, that the price of fuel in the US – which has self-service stations – is higher than in South Africa. I have been to Germany [and other international markets], and that myth needs to be corrected. Consumers think that if self-service stations come, the price of fuel will go down. It is not true,” he said, adding that in those countries, consumers also paid for tyre pressure.

He said 55% of the fuel price comprised government levies and taxes, which drove the price of fuel in South Africa.

The remainder was driven by the rand-dollar exchange rate as South Africa is a net importer of fuel.

Nomvula Khalo, spokesperson for the energy department, confirmed that the FRA had brought an application at the Gauteng Local Division of the High Court against the minister and other parties. This, to “direct the minister to clarify the proper allocation of the entrepreneurial compensation portion of the retail margin of the Regulatory Accounting System and whether oil companies are entitled to recover from it”.

Khalo said the department was opposing the application and that an answering affidavit had been filed.

“In an effort to settle the matter, the energy minister, the controller and the department initiated engagements with the parties and other relevant stakeholders outside the court process,” she said, adding that efforts to resolve the matter among the stakeholders had proved fruitless as no resolution was reached.

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