Businesses that increase prices in advance of fuel cost increases or increase prices by far more than their cost increases risk being prosecuted and found guilty of price gouging.
“The same applies to businesses that continue to charge higher prices after the oil price shock has subsided,” said the Competition Commission, which called on fuel businesses in South Africa to comply with the law and avoid price gouging behaviour during this time of oil price volatility.
“The war in the Middle East has caused global oil prices to surge above $100 (R1,716) per barrel in the past two weeks. While a higher oil price is expected to raise the costs of fuel in South Africa and products and services that use fuel, there is a distinct risk that unscrupulous businesses will exploit the sudden surge and uncertainty in fuel prices by engaging in price gouging, namely, increasing prices beyond what is warranted by the fuel cost increases,” it said.
“This risk is prevalent for unregulated fuels such as diesel retail prices and jet fuel, oil-based products such as nitrogen-based fertilisers and plastics, fuel-intensive services such as air, land and sea transport and logistics, and all other products and services that rely on these inputs, particularly food products and delivery services.”
The commission said South African case precedent on price gouging sets clear standards for businesses facing these types of cost increases, namely:
- Businesses may not increase prices in anticipation of future fuel cost increases; they may only increase prices once they experience actual fuel cost increases.
- Businesses that experience fuel cost increases may only increase their prices in proportion to the actual fuel cost increases they experience.
In effect, the two conditions mean product or service margins after the surge in fuel prices should be no higher than the margins before the fuel price increase.
Furthermore, once fuel costs decline, product or service prices should decline immediately.
Unlike petrol, which has a regulated pump price, only the wholesale price of diesel is set by the government. This means fuel station owners are allowed to set their own diesel retail prices, resulting in variations between stations.
Last week, TotalEnergies backtracked on a call to its fuel retailers to gradually raise the retail price of diesel by R8/l before this week’s official fuel price adjustment, which is expected to see petrol go up by more than R5/l and diesel by more than R10/l.
TotalEnergies had wanted to preemptively increase prices to manage heightened consumer demand, which saw some fuel stations running out of diesel last week.
However, the move was opposed by the Fuel Retailers Association, which said there was a slate levy that managed the difference between the actual fuel price and the regulated pump price, acting as a buffer for oil companies when they face losses from high, unpredictable price swings.
“If oil companies recover price increases directly from motorists now, and then also receive a slate adjustment two months later to recover the same under-recovery, it implies they would effectively be recovering twice for the same cost,” Fuel Retailers Association CEO Reggie Sibiya said in a letter to the department of mineral resources and petroleum.
“This ‘double-dipping’ not only burdens consumers unfairly but also renders retailers uncompetitive as they cannot absorb or justify the increases to motorists.
“These instructions place an unfair burden on retailers, who face customer backlash for price increases they did not initiate.”
The Competition Commission called on the public and businesses to report instances where they believe price gouging is occurring by lodging a complaint via email to ccsa@compcom.co.za or via WhatsApp at 084-743-0000.
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