Petrol price cap will negatively affect consumers: Analysts

Fuel pumps
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Analysts say a cap on the price of 93-unleaded petrol will ultimately have a negative impact on consumers. Earlier on Thursday Energy Minister, Jeff Radebe, said that government was considering fixing the price of fuel to reduce the impact of the rising cost of petrol on consumers.

Radebe cautioned that the price of petrol could increase to higher levels next month, due to global factors.

Radebe said that a task team comprising of officials from National Treasury and the Energy Department had been established to examine possible options to cushion consumers from another fuel price increase.

“We started a consultation process with the petroleum industry with specific reference of asking their expert advice what the impact would be if we were to set a maximum price for 93 unleaded. So we’ve given the industry until 18th of October to respond to us after which we will take an appropriate decision,” said Radebe.

Chief Economist at Econometrix Dr Azar Jammine says a cap on the petrol price may be feasible, however government is likely to fund the subsidy through other forms of tax.

“You can certainly cap the petrol price if you then raise taxes from other sources such as VAT or increased personal income taxes etc.  At the end of the day, I don’t think it makes any difference, people are going to have to pay for it one way or another.”

Chief Economist at Nedbank, Dennis Dykes says capping the prices of petrol will be unsustainable for government due to volatility in the currency and the oil prices. “I think it will be a very slippery path to start suggesting an overall fuel price subsidy because we don’t know what’s going to happen to the oil price. The oil price could double, over time it could go substantially higher and the rand could significantly weaken and if you’re now talking about a ceiling then you gonna have to pour some money into this subsidy.”

The increase in the fuel price has largely been due to the rise in the price of Brent crude oil and the weaknesses in the rand-dollar exchange rate.