Minister of Minerals and Energy Lindiwe Hendricks this week threw up her hands at escalating fuel prices, saying there was nothing the government could do.
But administered prices, those set by regulation, make up a large part of the fuel price and the evidence is that the government has been doing a poor job in keeping price increases in line with inflation.
If crude oil, refining costs and taxes are stripped out, the administered portion of the petrol price is up an eye-popping 72% since 1999.
These are the wholesale, retail, transport and delivery components of the petrol price. They have increased from 58c a litre in 1999 to R1 a litre now. Annualised, this increase is from R6,2-billion to R11-billion.
The biggest margin increase, that granted to wholesalers, also called the marketing margin, is up by 130% from 17c a litre in 1999 to 39,2c at present. This is from R1,8-billion to R4,3-billion in annualised terms.
These margin increases are all the more remarkable given that total petrol sales have been relatively flat, rising only modestly from 10,8-billion to 11-billion litres during the six-year period.
The marketing margin is calculated using the controversial marketing-of-petroleum activities return (MPAR) formula which critics say is designed to encourage the fuel industry to build expensive petrol stations rather than concentrate on efficiency.
The result has been huge over-investment in petrol garages, convenience stores and car washes, all of which help drive up fuel prices.
MPAR is designed to give the fuel industry a 15% return on assets used in getting fuel from refinery to market.
“You go to fill up with petrol these days and you find there’s a Woolworths there,” one fuel retailer told the Mail & Guardian.
“There is so much going on the forecourt which has nothing to do with fuel. What’s happening?”
The value of marketing assets has been a closely guarded government secret since last disclosed in 2002 when it stood at R13,3-billion. Industry insiders estimate their present value at between R34- and R41-billion.
The industry has splurged on building its asset base even though about 40% of the country’s fuel stations are said to be uneconomic.
Peter Morgan of the Fuel Retailer’s Association, which represents service station operators, said MPAR has led to an over-proliferation of stations.
Morgan says only the high-volume stations are profitable. “If you use 300 000 litres a month as break-even, about 40% are battling. There is no sustainability in fuel.”
The government has, at least in part, acknowledged the problem. The senior official charged with regulating the fuel price, Nhlanhla Gumede, this week in a radio interview described some of country’s service stations as “gold-plated”. The government, though, is not presenting solutions to the current crisis.
Petrol prices in Gauteng rocketed to R5,91 a litre this week with more increases projected as crude oil prices remain on the boil, most recently because of fall-out from Hurricane Katrina.
President Thabo Mbeki and Reserve Bank Governor Tito Mboweni have led an onslaught on inflation-busting administered prices because they pose a threat to interest rates and growth, but the Department of Minerals and Energy appears to have its own agenda.
Consumer inflation has averaged just 5,4% a year since 1999 while the non-refining, non-tax portion of the petrol price is up by an average 9% and the wholesale margin by an average 21,6% during the same period.
Industry sources acknowledge the MPAR formula does not encourage efficiency, although one says there is an incentive not to over-invest because margin increases are shared by all participants.
The Department of Minerals and Energy did not respond to requests by e-mail for information on the asset size of the fuel-marketing industry.
A study by researchers at the University of Potchefstroom found that the majority of fuel stations can handle volume increases of up to 40% without any capital investment.
The fuel industry charter envisages more market entrants as new black entrepreneurs will be encouraged into the market as small- and medium-enterprises.
But Morgan warned that the current regulatory framework coupled with the over-proliferation of service stations could see many of these new players fail.
Sasol Group strategy manager Andre de Ruyter said that “while the MPAR has increased, Sasol’s contribution to the asset base is only a fraction of the total amount.
“Sasol changed its assets from the Blue Pump infrastructure to its own service stations by 2003, but the total increase in the asset base attributable to this change certainly does not amount to the billions of rands mooted.
“Sasol’s assets were also included in the MPAR calculation from the mid 1980s, not from 2003.”
De Ruyter said the MPAR increase is a good reason for supporting the Uhambo (Sasol/Engen) merger.
“If the merger does not proceed, Sasol will have no option but to increase its marketing assets significantly, and this will cause the asset base in MPAR to increase, with a concomitant increase in the fuel price.”