The South African government must urgently deregulate petrol and diesel prices in South Africa, or it could face legal action.
This is the call from labour union Solidarity, which has warned that the surging fuel price threatened economic growth and that current price controls were not benefitting motorists.
The union has written letters to the finance and energy ministers in which it lay down its case for deregulation and asked National Treasury to reduce the fuel levy.
Solidarity’s comment comes as petrol and diesel prices in South Africa have reached record levels due to a weakening rand and a global increase in the Brent crude oil price.
The latter is expected to continue its climb as demand for fuel increases with more Covid-19 lockdowns being lifted around the world.
According to the AA, the inland price of petrol is expected to breach R20 in December.
Solidarity economic researcher, Theuns du Buisson, said deregulation of fuel prices was in the public interest.
“Today, our country counts among a minority of countries whose governments are exercising the current degree of artificial price manipulation.” Du Buisson said.
“To exacerbate matters, our government insists on keeping the price of certain fuels artificially high while almost all other governments are intervening to keep the price of fuel lower.”
Du Buisson pointed out that many people had not fully recovered financially from the impact of the Covid-19 pandemic.
Solidarity wants wholesale and retail prices of petrol and diesel to be deregulated, allowing sellers to determine prices.
South Africa currently regulates both the wholesale and retail prices of petrol, while the diesel wholesale price is also set by the government.
The retail price of diesel is the only deregulated item.
The latter allows forecourts to set their own prices and encourages cost-cutting in other areas to try and win customers over with the best price.
Solidarity said that deregulation of the retail diesel price resulted in immediate significant price drops in prices and explained that diesel remained considerably cheaper than petrol as a result.
“Currently, petrol is about 20 cents more expensive than diesel when it is imported at R9.37 per litre,” the union said.
“However, at the retail level, the difference in price is often more than R2 per litre, with R16.66 being the lowest diesel price Solidarity could trace – a difference of R2.88 per litre.”
Du Buisson said it was Solidarity’s firm belief that the continuation of price regulation came down to “irrational and unfair conduct” by the ministers.
“Should the ministers decide not to offer relief to citizens, legal action challenging it in court cannot be ruled out,” he stated.
In its letter to the energy minister, Solidarity chief executive Dirk Hermann pointed out that the proposal would not be strange to the government.
In the 1998 White Paper on Energy Policy, the government said it believed that competitive market forces should determine prices.
It stated an intention to move away from price control once suitable “transitional milestones and arrangements” had been achieved.
“Control of industry margins, at wholesale and retail level, will be removed and thereafter will be determined on a competitive and commercial basis,” the government said.
However, more than 20 years later, petrol prices are still regulated.
Hermann said South Africans could no longer afford to wait for such “transitional arrangements”.
He added that National Treasury had conceded that the policy of price controls on fuel had failed to achieve its desired goals.
That would bolster a legal challenge to the controls in respect of their rationality and legality.
Solidarity’s call echoes that of agriculture organisation AgriSA, which has warned that rising fuel prices will significantly impact food prices.