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Rising petrol prices put pressure on fuel retail sector volumes

The fuel retailers’ association chief executive, Reggie Sibiya, says the industry has not yet fully recovered from ongoing Covid-19 lockdowns. Picture: Ihsaan Haffejee.

The fuel retailers’ association chief executive, Reggie Sibiya, says the industry has not yet fully recovered from ongoing Covid-19 lockdowns. Picture: Ihsaan Haffejee.

Published Aug 4, 2021


INCREASING fuel prices were exerting pressure on already compromised volumes in the fuel retail sector, the Fuel Retailers Association of Southern Africa (FRA) said yesterday.

The price of both grades of petrol went up by 91 cents per litre and diesel increased by between 54 cents and 55c per litre this month.

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FRA chief executive Reggie Sibiya said the sector had not yet fully recovered from the Covid-19 lockdowns.

The fuel increases primarily knocked the cash flows of FRA members.

Sibiya said when fuel prices went up, the working capital requirements increased and the compromised cash flows, which were also due to declining volumes, meant that banks were not as willing to increase working capital allocations.

“With lockdowns and curfews, the customer visits have been reduced. Also, with some customers experiencing loss of income and jobs, they are spending less on fuel. Even those who are not affected are spending less, as more people have adopted working from home.

“The declines in the tourism industry are a direct impact, as less cars are being hired for travel purposes. Most meetings in companies are also now virtual, meaning less fuel is spent on travelling between meetings and also where ordinarily people would hire cars after their flights to attend meetings,” said Sibiya.

He said the recent fuel price increase came as more than 90 service stations had been looted and vandalised during the recent unrest, with the estimated total loss and damages almost R300 million.

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“Most of those service stations are still not operational, as claiming insurance processes will still take their own time. Once that is sorted out, the reconstruction of assets will also follow their own process, which can take up between six and 12 months,” said Sibiya.

The FRA said this meant no income for the business and also no income for the employees, because the process of claiming from the Temporary Employer/Employee Relief Scheme was just another hurdle, and some employers gave up in the middle of the process.

The FRA said the immediate assistance required by its members was for insurance companies to expedite claims, and for oil companies to expedite the reconstruction of the affected service stations

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Sibiya said the other immediate intervention required was for the Department of Mineral Resources and Energy to address the long-outstanding margin recovery, which was highlighted by a 2018 KPMG study that showed the department was undercompensating.

“The Retail Opex margins by 12cpl, which would be even higher now when applying inflationary adjustments since 2018. This activity alone will redress most challenges including declining volumes and the sustainability of retailers and more so the new entrants most of whom are black,” said Sibiya.

Meanwhile, FNB Agri-Business senior agricultural economist Paul Makube said the hefty fuel increase came at a time when farmers were delivering a huge grain and oilseed crop to the country’s silos and preparing for the 2021/22 planting season in just more than a month, if rains permitted.

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“The availability of fuel at the right time and price is critical for a successful operation across the agriculture value chain. Not only fuel is impacted, but the cost of imported agriculture inputs, such as fertilizer, pesticides and herbicides, will also increase, especially given the recent constraints with availability of ingredients to produce certain fertilizers and the higher cost of shipping,” said Makube.

Makube said grain producers and logistics companies in the agriculture value chain would feel the pain, as close to 80 percent of grain was transported by road.

He said livestock and horticulture, with the citrus harvest in its infancy, would also be affected with its distribution across the country, as well as exports. The mounting cost pressures would eventually erode producer margins and result in potential inflationary pain for consumers, he said.

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