DA’s proposed fuel pricing bill: Is it a possibility?

FIFI PETERS: I’m sure you all know by now that come midnight we will be paying a new record [price] for petrol when the new prices kick in. Most of you will also know by now that the DA, the Democratic Alliance, believes that deregulating the fuel market here in South Africa, where the petrol price is essentially left to the free market to set without any interference from government – as is presently the case – will ultimately result in lower prices at the pumps.

But for more analysis on this proposal by the DA, I am joined by Stephanie Fick, the executive director for the Accountability Division at Outa (Organisation Undoing Tax Abuse). Stefanie, thanks so much for your time. What do you make of what the DA is saying, and whether increased competition will indeed lead to lower prices at the pump?

STEFANIE FICK: Good evening. Yes, I think it’s an interesting concept and maybe it deserves a little bit of conversation. But I am a bit sceptical in the sense that, if you go and look at how the petrol price is composed, I do not know whether that will help, necessarily. I think the biggest problem that we are facing with the petrol price is firstly the levies that have gone up over a period of time: the basic fuel price around 9% if you take an average, [and] the RAF [Road Accident Fund] levy 12%, 13% over a period. Whether we will be able to get rid of those levies is debatable. I don’t think so, because how are we going to fund it?

To come to my original point, the big biggest problem we are sitting with is the amount of money we pay per barrel for oil, which obviously we’ve seen. But I think even worse than that is our rand/dollar exchange rate. Just to give you an example, in July 2008 we actually paid more for oil per barrel. It was at $120/barrel. Now it is around $113/barrel, but we pay more for petrol. One of the reasons is the rand exchange rate. At that point, it was R7.82/dollar. It is now at R16.35/dollar. So the bigger problem we have is that we need to work on the exchange rate. How we do that is to solve South Africa’s economic policy so that we can get stimulation there and bring that down.

FIFI PETERS: I also don’t know much about this. I’m trying to find out as much as I can, but I think that in terms of what you are referring to, the fact that we import oil at the international price and at what our rand dictates, what we pay just speaks to one of the shortfalls of this proposal, given that perhaps it could work if South Africa had refining or more refining capabilities whereby we [would be] able to refine our own oil, make it fit for purpose for the cars. But that is not presently the case, which is why we import as much as we do right now.

STEFANIE FICK: That’s correct. We are, in other words, at the mercy of whatever happens internationally. Now we don’t have control over it, although what we do have control over is to try and minimise the risk we have with the rand/dollar exchange rate – if we can get that lower. That means that [if] internationally they want to invest in South Africa, I think that will make a difference in terms of our unemployment rate.

So to come back to the proposal, to come up with suggestions is always a good thing.

I just think that it’s a bit opportunistic now because taking away a government’s ability to dictate whatever happens with the fuel price is not going to solve the problem we are currently sitting with.

FIFI PETERS: Someone also told of an example in California up until yesterday; I see the prices have come down quite a bit, but in California they pay around $5 a litre for gasoline. I think that’s what they call it that side of town. And if you do the conversion with the exchange rate right now, you’re looking at R82 or so per litre – and that is a market in which the market is free and there’s little government interference, just speaking to your point that the free market may not necessarily be the solution here. In your view what could be the solution to lower prices, things that we actually do have within our control because the currency is sometimes beyond us? We can be doing all the right things from an economic standpoint, but if the dollar decides to do what it’s doing, like today in terms of strengthening, that’s beyond our control. So what factors can we change within our control, in your view, to lower the price of petrol right now?

STEFANIE FICK: I think it is a good idea to go and look at the different levies, all the levies – because we are talking about 11 different levies, and it is an easy way for government to get tax. You can’t separate, for example, the fuel price from all the levies. So it’s an easy way of collecting tax, whatever the reason is. It’s to go and look at the different levies to see if everything is still fit for purpose, and then look at the way that there have been increases over a period – your retail and wholesale increases and all of that. Go and look at those margins and see whether there are not some levies we can do away with.

And then the fuel levy – the fuel levy was reduced by R1.50. Obviously we are now feeling the 75 cents kicking in. The question is one way of, I think, curbing the petrol [price] getting out of hand is that government goes somewhere else to look for taxes. We hear about the deficit in the budget, but maybe government should go and look at [its] expenses.

Maybe it’s time to go and cut somewhere else, instead of relying heavily on, for example, the basic fuel price to make sure that our fiscus has enough money.

I really think that there are quite a few ways, a number of ways that government can reduce its expenses and give that relief to motorists because with prices going up everybody’s going to feel it. Really it is across the board, and people are going to feel it. It has an impact on everybody’s daily lives because, if the petrol price goes up, everything goes up.

FIFI PETERS: All right, we’ll leave it there. I think what we want to do is speak to quite a number of people on this. I think the DA has also put it out for public comment. But my takeaway from you is just to look at the other levies, what we can do away with, and also look at other parts of the budgets that government can potentially claw money from to bring relief – as opposed to higher taxes on the fuel front.

Stefanie, thanks so much for your insights. We’ll leave it there. Stephanie Fick is the executive director of the Accountability Division at Outa.