South Africans have endured rampant petrol prices over the past two years, and economists at PwC have highlighted several areas of possible reform the government can approach to lower fuel prices in the country.

According to PwC’s latest economic outlook for South Africa, petrol and diesel prices have risen by 22% and 41%, respectively, in the last two years.

Due to these unsustainable increases, there is widespread interest among South African fuel buyers in some kind of reform that would result in structurally lower fuel costs.

There is also interest from the fuel industry itself: Fuel Retailers’ Association CEO Reggie Sibiya told Business Day in September that fuel retailers would welcome an official review of the pricing methodology.

The report noted that around 46% (R10.95/litre) of the petrol pump price consists of various taxes, levies, and duties, and this is often talked about as a target for pricing reform.

The government has recently made changes to fuel prices in South Africa. One of these changes was removing the Demand Side Management (DSM) levy of R0.10/litre from the inland price of 95 octane unleaded petrol, as well as removing the 15% premium from the freight rate, which also amounted to R0.10/litre.

Additionally, the National Treasury and the DMRE implemented a temporary price relief campaign last year when local fuel prices reached record highs.

During 2022Q2, buyers were given a R1.50/litre tax break on fuel prices, which was phased down to R0.75/litre in July 2022.

The April-July 2022 price reprieve, combined with no annual change to the general fuel levy and Road Accident Fund (RAF) levy for the 2022/2023 fiscal year, provided R14 billion in tax relief in the past fiscal year.

In August 2023, the South African Reserve Bank (SARB) made a note that the finance minister had confirmed an ongoing process to review the petrol price.

This follows the Medium Term Budget Policy Statement (MTBPS) issued last year, which stated that the National Treasury and Department of Mineral Resources and Energy (DMRE) would review the fuel price methodology.

However, there was no mention of this review in the MTBPS 2023.

Until a formal announcement is made on the reform of fuel prices, there will be different perspectives on what measures could be taken. The SARB identified seven elements within the fuel price that could be considered for reform, which are highlighted in the table below.

Component	Intervention	Potential impact
RAF levy	Review the viability of compulsory third-party insurance as an alternative to the RAF.	High
Retail margin	Consider transitioning the petrol price to a maximum price, rather than a regulated price.	High
Retail margin	Review the entrepreneurial compensation and owner remuneration elements of the benchmark service station.	Medium
Retail margin	Update the survey underpinning the benchmark service station and/or require mandatory annual disclosure of costs and assets by service stations.	Low
Basic fuel price	Update the methodology for calculating insurance, coastal storage and ocean loss.	Low
Basic fuel price	Increase the regularity of basic fuel price updates to every two weeks.	Low
Transport costs	Publish and review the methodology for calculating inland transport costs.	Low

The SARB notes the reforms that could offer the most significant benefits are 1) a review of the RAF system and 2) the shift to a maximum petrol price.

These are also the most challenging to implement and would require “significant additional evaluation work and weighing of large, vested interests”.

However, big changes are not necessarily the only solution, as even a small adjustment in fuel prices would have a substantial impact on the economy.

“Let us consider, for example, the cost of fuel as part of wholesale and retail operations. This industry uses one billion litres of fuel per year in direct (own fleet) and indirect (transport service providers) logistics to distribute goods across the country reducing taxes on diesel by just R0.10/litre would reduce this transport cost by more than R100 million,” said PwC.

“This magnitude of potential savings represents a substantial amount for South African households: if passed on to the consumer it could, for instance, fund the purchasing of 400,000 pairs of school shoes,” it added.

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