Petrol price hikes a symptom of weak economy - AA

The four consecutive fuel price increases since April this year are a symptom of a weak economy, and deregulation of the petrol price is not necessarily a solution, the Automobile Association said in a statement.

Speaking at a debate over the deregulation of petrol prices at the Wits Business School on Wednesday evening, AA CEO Collins Khumalo said a broader overview of the current economic climate in the country is needed to deal with the increases in the fuel prices.

The AA, who co-hosted the debate, said civil society needs to work together to find a practical solution to a problem which goes deeper than the fuel price.

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Khumalo noted in a statement post the event that several options to reduce the fuel price have been put forward at the debate but "the reality, unfortunately, is that the fuel price make-up is complex and a single solution will not necessarily solve the problem”.

He said scrapping the indirect taxes on fuel – R3.37/l general fuel levy and R1.93/l Road Accident Fund levy – is not going to ease the pressure on consumers.

“In the short-term the scrapping of these levies may reduce the fuel price but government will still have to collect this revenue through other means. Will consumers be happier... with the raising of the VAT rate, or an increase in personal income tax rates,” he asked.

Khumalo said deregulation on its own will not fix the entire fuel price structure and, importantly, it is not going to put money in the pockets of consumers immediately.

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Khumalo said the issue of deregulation had many pros and cons, each with their own unique complexities. He noted that while the debate was ongoing, the AA did not have a firm position on either regulation or deregulation, and that a considered, thorough investigation into the best outcome for road users needs to be found.

“Regulation, for instance, provides transparency to road users in that the price is published monthly, and all the components which make up the fuel price are there for everyone to see. There is also existing infrastructure for refining and, to a large extent, fluctuations in international product prices, and the rand/US dollar exchange rate, are ‘smoothed out’ over a period of month,” he noted.

On the other hand, in a deregulated environment fuel prices may decrease as wholesalers and retailers determine their own pricing to compete for customers, he argued.

“A con of deregulation, however, is that service stations in remote areas may suffer because of their distance from supply points. And retailers who want to offer self-service options to consumers may have to lay off pump attendants which will obviously add to the unemployment rate in the country.”

Khumalo cautioned against civil action in the form of road blockades and fuel boycotts over rising fuel prices, saying it may not bring the desired results to those protesting. Instead it could further harm the economy.

He said it is important to understand that rising fuel prices are an economic issue, not a petrol issue. "What we all need to get behind, as a nation, is understanding how government is spending the money from the levies on fuel, and how any wastage in expenditure can be curbed. In this way the considerable onus on consumers will, in the long run, be eased.”

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On the other major issue discussed at the debate, Khumalo said the structure of government and state-owned enterprises (SOEs) needs to be more efficiently managed.

“There is a dire need for the proper allocation of resources – and management of those resources – throughout government and SOEs. If these resources are better managed the impact of what we are seeing now would be lessened,” he said.

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