Keeping the Land Wet: Competition and Incumbency in the Liquid Fuel Value Chain in South Africa

Abstract

Barriers to entry, by reinforcing the market power of incumbent firms in liquid fuel distribution, have meant that the pace of transformation throughout the fuel value chain in South Africa has been slow. The ability of new firms to enter the sector, develop capabilities, and become effective competitors to the major oil companies is important for achieving transformation and introducing dynamic rivalry in the liquid fuels sector. This paper draws on a recent CCRED study based on interviews with market participants and publicly available sources to assess the nature and extent of barriers to entry and expansion of firms in the wholesale of liquid fuels. The analysis focuses on access to supply, access to customers, access to key infrastructure, and policy and regulatory challenges rather than the known shortage of skills and finance in the sector. It is clear that these challenges at the wholesale level form part of a broader set of concerns in the value chain as a whole, relating to access to infrastructure and low levels of competition between the major oil companies themselves. The paper concludes by suggesting a set of short and long-term remedies for increasing access and competition in transportation and storage, and wholesaling infrastructure.