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For Customers: Fuel Margins Explained

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Particularly during trying economic times, customers are often displeased with fuel retailers about petrol prices and increases. Most customers don’t understand that prices are not set by retailers. And it is less known that retailers actually only make small margins on fuel sales, particularly considering how hard they have to work at their business. Below we explain fuel margins so that customers can gain an understanding of how the pricing works in South Africa, and what margins retailers actually receive.

In South Africa, the petrol price is regulated. The price is broken up into various components, listed below. The largest component is the basic fuel price payable on international markets when fuel is imported. Other costs include the fuel levy, Road Accident Fund levy, storage, distribution, freight, insurance, customs duty, petroleum pipelines levy and other levies. The fuel levy is a general tax and is administered by the National Treasury. Fuel station retailers in South Africa earn low margins on the fuel they sell.

The price of fuel differs depending on if it is sold inland or in coastal regions.

In April 2016, the inland petrol price was R12.32. The fuel levy included in this amount was R2.85 and the Road Accident Fund levy was R1.54.

 

Petrol Price Breakdown Rand Value Percentage of Total
Fuel levy R 2.85 23.13%
Road Accident Fund levy R 1.54 12.5%
Storage, distribution, transport, retailer margin, etc. R 2.67 21.67%
Basic fuel price, freight, insurance, cargo, dues, storage, financing, etc. R 5.26 42.69%
TOTAL R 12.32 100%

There is often a perception that fuel station owners are oil company representatives who are making vasts amounts of money at the expense of their customers. In contrast, their margins are low and they depend on their business pumping many thousands of litres per month. The investment required to own a fuel station is also large. For example, a fuel station that sells 200 000 litres a month requires a capital investment in facilities of about R 2.5 million, depending on the area. This is a significant amount for small players or entrepreneurs starting out.

As a customer, it’s important to realise the challenges fuel station owners face, particularly the small margins they make on fuel sales.