Yulz9081
Honorary ///Member
cust1234 said:Just my 2c regarding regulation - In South Africa, the price of retail petrol is built up on a cost recovery mechanism with a small allocation for a wholesale profit. The department aggregates the costs incurred by all of the oil companies and works out an average c/l margin to apply to the retail price. As a result, the oil companies are incentivised to be more efficient across the value chain (thus resulting in incremental returns to the company if they can beat the regulated margin). De-regulation will remove this incentive and, in my opinion, lead to increased costs in the long term.
In addition, due to our dependence on fuel, the key item is to ensure security of supply. If you de-regulate, you move the power into the hands of the oil companies. Remember that, in a de-regulated market, pricing is set where supply meets demand. Can you imagine the catastrophe if the oil companies pull back on refinery production? They could essentially drive the price of fuel up whenever they want (think back to the de-regulation of energy prices in California during the Enron period). Furthermore, this can be consequential due to an unplanned refinery shut-down, etc.
PS as a side comment - The company that benefits the most of the regulated pricing though is Sasol. The fundamental starting component of the fuel price is the BFP (Basic Fuel Price) - which is what the oil companies are compensated for ex-refinery gate. The BFP is primarily driven by the influences of the crude oil price and the exchange rate. As Sasol relies on CTL (Coal to Liquid) and GTL (Gas to Liquid), they have no exposure to these variables. So when the BFP is adjusted, their costs remain flat and their profits increase. So sometimes, as good as it is to buy local, understand that you're driving up the profits of a company which is protected by a regulated framework.
As said before, just my 2c :=):
Apologies, should have mentioned that this is in relation to regulation in general and not regulating the diesel prices.
Moral of the story: Hold on to your Sasol shares :rollsmile: