South African regulator issues warning over excessive oil price increases

Its warning comes in the wake of similar concerns expressed by its UK counterpart the Competition and Markets Authority (CMA), which recently announced it was scrutinising price surges in heating oil and road fuel as the conflict in the gulf continues.

Earlier this week the South African government announced unleaded petrol would increase by more than three rands per litre, while wholesale diesel prices would go up by more than seven rand.

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In its media statement, the Competition Commission of South Africa (CCSA) warned of three main types of conduct:

• businesses increasing prices in anticipation of future cost increases, stating that businesses can only increase prices once the actual cost increases;
• businesses increasing prices in a manner that is disproportionate to the actual increase in costs experienced; and
• businesses maintaining the increased prices once the fuel costs decline, stating that the prices should decline immediately once the cost declines.

In South African legislation, there are no express reference to price gouging as a term, but excessive pricing is recognised and ‘dominant’ firms are prohibited from charging excessive prices under section 8 of the Competition Act 89 of 1998 (Competition Act).

For a firm to be considered dominant under the legislation, it needs to have a market share of either:

• at least 45% of the relevant market;
• at least 35%, but less than 45%, of that market - unless it can show that it does not have market power, such as the ability to control prices, exclude competition or behave independently of its competitors, customers or suppliers; or
• less than 35% of that market, but has market power.

When considering whether a price is excessive, the competition authorities will consider a variety of factors set out in the Competition Act, including the price-cost margin, historic prices, the firm’s profits, and the length of time charged at the current price level.

While the CCSA has not followed the CMA’s approach by launching an early formal investigation, we fully expect that the CCSA will investigate any complaints. This would be a similar approach to the excessive pricing complaints that arose during the Covid-19 pandemic, where some businesses increased prices for respiratory face masks and hand sanitisers to unreasonable levels.

Along with the investigative and enforcement powers given to the CCSA by the Competition Act, the Consumer Protection Act 68 of 2008 (CPA) gives the National Consumer Commission (NCC) certain investigative and enforcement powers for breaches of the CPA.

Section 48 of the CPA states that a supplier must not offer to supply - or enter into any agreement to supply - any goods or services at a price or on terms that is unfair, unreasonable or unjust. What constitutes unfair, unreasonable or unjust prices is open-ended, and the CPA provides scope for a relatively wide interpretation.

As yet the NCC has not responded to the price increases or possible harm to consumers by unfair pricing, but it is anticipated that this may change as matters develop.

Alongside this, the South African government has recently reduced the fuel levy following calls from the public and political parties.

The fuel levy is effectively a consumer tax which adds approximately 30% to the price per litre of petrol. The intention behind the reduction is to quell the knock-on effects of rising fuel prices, and reduce pressure on businesses and consumers.  

One of the regulatory tools at the government’s disposal to address general pricing concerns is to lean on institutions – such as the CCSA and the NCC - to maintain discipline within the market to ensure that any price increases are reasonable and aligned with the actual cost price increase for fuel. While the CMA is undertaking monitoring of the fuel sector in the UK, it remains to be seen if the CCSA or NCC will adopt a similar approach in the near future.