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Here's how you lower the fuel price

Here's how you lower the fuel price

The African National Congress and President Cyril Ramaphosa appear determined to lower the fuel price – in the midst of raising it – with Business Tech reporting that government is “actively seeking ways” to find a solution to the problem. The offices of the Free Market Foundation have an open-door policy, and if government is serious about fixing the mess it has created, we will welcome its representatives with open arms to solve the problem.

A Scottish colleague of mine recently told me that he finds the situation in South Africa absolutely bewildering. Having lived in 50 countries around the world at some point or another, he told me South Africa is the only place he’s ever been where there’s no competition in the fuel industry. This, of course, is due to one simple reason: government fixes the price of fuel. President Ramaphosa’s assurances that the fuel price is “beyond the government’s control” and that South Africa is a “price taker” is simply untrue.

In April, the Automobile Association shared some interesting facts about the fuel price. In April 2018 rands, a litre of 95 unleaded fuel arriving at a petrol station in Gauteng cost R8.93. This is the basic fuel price – determined by factors largely outside of South Africa’s control, with the possible exception of custom dues. 

Of course, we weren’t paying R8.93 for fuel back then – we were paying R14.22. This is because of the general fuel levy (R3.37 per litre) and the Road Accident Fund levy (R1.93 per litre) that government imposes on each litre of fuel. These surcharges are, naturally, well within government’s control. For a 50-litre tank of fuel totalling R711.50, we were thus paying only R446.50 for the actual fuel. The remaining R265 that we paid in April for a tank of petrol disappeared into the pit of government inefficiency and corruption.

Evidently, there’s much government can do.

It can lower, but ideally abolish, both the general fuel levy and the Road Accident Fund levy. Government has not taken its road-fixing mandate seriously for some time, and it is quite clear that the money destined for that purpose goes elsewhere. The Road Accident Fund, furthermore, is broke, and has been for several years. South African consumers and taxpayers should not be expected to foot the bill for this inefficient and arguably unconstitutional waste of money.

But more than that, government should remove itself entirely from the determination of fuel prices. 

We pay exactly the same for petrol whether we are buying it from Shell, Engen, BP or Caltex. On the question of the product we are buying, there is no competition between these fuel franchises. One cannot try to win more customers from the others by charging less for fuel, because government determines both the minimum and maximum prices that can be charged for the product.

Whereas in the United States you can drive a few kilometres down the road to the next gas station to pay less for your fuel, in South Africa you are at the mercy of what our rulers in government have ordained from their perch to be the price. 

At different times of the same day, in America, the price could be cheaper or more expensive, because the market is allowed to respond to changing circumstances. Combined with the open competition in the market, gas franchises will always try and outdo one another in attracting customers to buy their more affordable product. Different states also have different consumption taxes on gas, meaning gas prices are never the same between the states. In South Africa, the market is prohibited, by the threat of legal sanction, from offering us a lower price for fuel, and with our centralised system of government and no competition between the provinces, we pay exactly the same for fuel everywhere at the coast, and everywhere in the interior.

South Africans should not ask government to stop raising the price, or to lower the price, of fuel. Instead, we should insist that government leave fuel absolutely alone. Government’s arbitrary control of the fuel industry should be abolished in favour of free competition and consumer-centric enterprise.

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