Case Study: Petrol price regulation in South Africa In South Africa, government has intervened in and/or regulated marke
Posted: Sat May 07, 2022 8:54 pm
Case Study: Petrol price regulation in South
Africa
In South Africa, government has intervened in and/or regulated
markets involved in the manufacture, distribution, and retailing of
liquid fuels in various ways since the 1930s without providing
formal reasons for doing so. By 1998, the White Paper on Energy
Policy referred to ‘a labyrinthine set of regulatory controls’ (RSA
1998: 5). While the instruments used have changed over time, the
evidence suggests that the primary reason for market interventions
has been to support investors in various parts of the value chain.
This has been achieved by limiting competition. To a lesser extent,
there has been a wish to protect motorists from excessive pricing.
In addition, over time social policy objectives have become
entangled in petrol price regulation. These relate to the promotion
of small businesses and job creation. More recently, Black economic
empowerment has been added to the list. This mixture of reasons has
made it difficult for government to implement its policy of
deregulation.
Petrol was the most important liquid fuel in South Africa for
many years. Interventions in the petrol market have had knock-on
implications for the prices of diesel, illuminating paraffin, and
liquefied petroleum gas (LPG) and their control or regulation.
Petrol price control or regulation has been intimately bound up
with the structure of the industry and in particular the
proliferation of retail outlets, or what are colloquially known as
‘service stations’ despite the fact that they ceased to be places
where motor vehicles were serviced many years ago. The number of
service stations and their size have implications for employment in
the sector, a sensitive topic in South Africa due the enduring high
levels of unemployment. In the South African downstream petroleum
sector, there are elements of the value chain that have natural
monopoly characteristics, such as import terminals and pipelines
that warrant economic regulation, while there are others that do
not, such as refineries, some storage facilities, wholesaling, and
retail outlets. This mixture of characteristics contributes to the
often robust debate about price deregulation in South Africa. The
implications for any reform include at least the need to educate
key stakeholders about the different parts of the value chain and
which elements warrant regulation and which do not.
Questions 1
With reference to text above, make an argument on the positive
and negatives of price controls. In your argument, indicate what
the price controls intends to achieve. (10
marks
Africa
In South Africa, government has intervened in and/or regulated
markets involved in the manufacture, distribution, and retailing of
liquid fuels in various ways since the 1930s without providing
formal reasons for doing so. By 1998, the White Paper on Energy
Policy referred to ‘a labyrinthine set of regulatory controls’ (RSA
1998: 5). While the instruments used have changed over time, the
evidence suggests that the primary reason for market interventions
has been to support investors in various parts of the value chain.
This has been achieved by limiting competition. To a lesser extent,
there has been a wish to protect motorists from excessive pricing.
In addition, over time social policy objectives have become
entangled in petrol price regulation. These relate to the promotion
of small businesses and job creation. More recently, Black economic
empowerment has been added to the list. This mixture of reasons has
made it difficult for government to implement its policy of
deregulation.
Petrol was the most important liquid fuel in South Africa for
many years. Interventions in the petrol market have had knock-on
implications for the prices of diesel, illuminating paraffin, and
liquefied petroleum gas (LPG) and their control or regulation.
Petrol price control or regulation has been intimately bound up
with the structure of the industry and in particular the
proliferation of retail outlets, or what are colloquially known as
‘service stations’ despite the fact that they ceased to be places
where motor vehicles were serviced many years ago. The number of
service stations and their size have implications for employment in
the sector, a sensitive topic in South Africa due the enduring high
levels of unemployment. In the South African downstream petroleum
sector, there are elements of the value chain that have natural
monopoly characteristics, such as import terminals and pipelines
that warrant economic regulation, while there are others that do
not, such as refineries, some storage facilities, wholesaling, and
retail outlets. This mixture of characteristics contributes to the
often robust debate about price deregulation in South Africa. The
implications for any reform include at least the need to educate
key stakeholders about the different parts of the value chain and
which elements warrant regulation and which do not.
Questions 1
With reference to text above, make an argument on the positive
and negatives of price controls. In your argument, indicate what
the price controls intends to achieve. (10
marks