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Fuel retailers struggling to make viable returns

The planned fuel relief for motorists will leave fuel retailers out of pocket for every litre of fuel they sell by credit or debit card, the Fuel Retailers Association’s (FRA) said. Photo: Mike Dibetsoe

The planned fuel relief for motorists will leave fuel retailers out of pocket for every litre of fuel they sell by credit or debit card, the Fuel Retailers Association’s (FRA) said. Photo: Mike Dibetsoe

Published Apr 5, 2022

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The planned fuel relief for motorists will leave fuel retailers out of pocket for every litre of fuel they sell by credit or debit card, the Fuel Retailers Association’s (FRA) said.

FRA chief executive Reggie Sibiya said in response to the planned lowering of fuel prices announced by the government last week, that they welcomed any news of relief to their customers, the motorists.

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He said, however, any kind of relief should not come at the expense of crippling the economy, transformation, and jobs.

“Phase 1 relief is not only for motorists, but for fuel retailers too. Currently, retailers are attracting a cost of 38 cents per litre on credit cards and 14cpl on debit cards, based on the inland petrol price of R21.60.

The R1.50 off the price base will only save retailers about 2cpl on credit cards costs, and about 1cpl on debit card costs. This leaves a major under-recovery of 36cpl on credit cards, and 13cpl on debit card costs transactions,” he said.

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Credit card and debit card transactions are now between 60 percent and 70 percent of total fuel sales. “So, in essence our dilemma still stands,” Sibiya said.

PetroConnect, a fuel industry service provider said any threat to the retailer’s margin would undo all the positive work that had already been achieved thus far in the fuel retail sector.

Director and co-founder, Sbonelo Mbatha, said the unintended consequences for allowing discounts or margin cuts were that new retailers could not compete with old retailers on price.

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“Any cut in margin will hit or impact directly on their ability to service their business loans, ultimately threatening their survival,” Mbatha said.

He said the margins were already squeezed due to sharp increase in operational expenses such as electricity, credit card fees, insurance, and bank charges.

Mbatha said new historically, disadvantaged individuals’ (HDIs) entrants to the industry had faced “enormous challenges” largely due to the government, which was the primary custodian of sustainable transformation in this sector.

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For example, he said, retailers face an historical profit margin under-recovery due to uncompensated credit card margins that were introduced during the 2010 World Cup, a proposal of fixing ULP 93 that allowed for discounts, and lately the proposal to cut retail fuel margins.

Finance Minister Enoch Godongwana last Thursday announced an immediate fuel price intervention of R1.50 per litre for the next two months, with the reduction in the general fuel levy to be funded by sale of a portion of the strategic crude oil reserves.

Phase 2 would involve additional measures from June 1, 2022 including a reduction in the basic fuel price of 3c/l; termination of the demand-side management levy (DSML) of 10c/l on 95 unleaded petrol sold inland; a price cap on 93 octane petrol, which would allow retailers to sell at a price below the regulated price; the termination of the practice to publish guidance by the DMRE on diesel prices to promote greater competition and the regulatory accounting system (including the retail margin, wholesale margin and secondary storage and distribution margins) being reviewed to assess whether adjustments can be made to lower the margins over the medium term.

BUSINESS REPORT

Related Topics:

Oil

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