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Written by businesstech | 4 May 2023

Pick n Pay chairman Gareth Ackerman says that the government is raking in millions of rands as a “windfall tax” because of load shedding.

Speaking at the retailer’s annual results, Ackerman noted that 37% of the group’s diesel costs go straight into the government’s coffers through the Road Accident Fund (RAF) levy – something he said was shocking and unconscionable.

“In recent months, we have spent around R60 million per month on diesel,” he said.

“It is an extraordinary challenge to manage a business on this basis. Without this unnecessary cost, our result would have beaten our own forecasts and those of many external commentators.”

For the year ended February 2023, Pick n Pay reported that it spent R522 million on diesel just to keep operating amid record levels of load shedding. On this basis, over R193 million (37%) would have been paid to the government in tax.

“This is unconscionable, particularly when rolled up across the economy and the hardship the blackouts are causing,” Ackerman said.

During his 2023 Budget Speech, finance minister Enoch Godongwana attempted to alleviate some of the burdens on businesses posed by the RAF tax, announcing that companies involved with food production would be exempt from this portion of the diesel price.

However, food retailers like Pick n Pay and Shoprite were not part of this exemption. Requests by the retail industry to be included in the government’s diesel rebate package have so far fallen on deaf ears, Ackerman said.

It was also revealed later in the official proposals that the RAF exemption wasn’t a complete exemption and that food manufacturers would only be exempt from 80% of the tax, and under very strict and specific conditions.

The costs associated with load shedding – either through lost production, lost sales, or rising mitigation costs – are costing the economy billions of rands each month. The South African Reserve Bank has estimated that load shedding will wipe a full two percentage points from South Africa’s GDP growth in 2023.

Ackerman said that daily blackouts have become the new reality.

“Which is not to say that we simply accept it and do nothing. We have worked hard on an energy resilience plan, and I am pleased at the progress the Group has made. But no company can absorb these costs indefinitely, given the scale of the investment needed to keep the power on and stores open,” he said.

Pick n Pay said that it is working to mitigate load shedding as much as possible, and will be looking to several initiatives to reduce cost pressures.

It said it will look to energy usage reduction through further investment in energy-efficient LED lighting, installation of automated controls to switch off certain equipment during load shedding, reconsideration of the optimal refrigeration footprint, improved production planning and reviewing stores with above-average diesel usage.

It will also look to landlord-supplied solar and purchasing renewable electricity from landlords.

Another measure is installing in-store battery energy storage solutions to operate supermarkets sustainably through load shedding. “The Group is in the process of trialling such solutions in a number of supermarkets and will critically assess the return on investment on these initiatives,” it said.

The group added that it will continue making the case to the government for diesel tax rebates.

“The group feels it is unconscionable to pay significant tax, including the Road Accident Fund levy, on diesel used to power generators to keep grocery stores open. The group is targeting FY24 diesel cost savings of at least R200 million, driven by these initiatives,” it said.

The envisaged savings will be heavily oriented towards H2 FY24, as the various initiatives gain traction. FY24 diesel cost expenditure will ultimately be driven by the levels of load shedding experienced, which brings a high level of uncertainty to the outlook, it said.

“While the group is doing its utmost to offset increased load shedding costs, it believes that it is inevitable that consumers will have to, over time, absorb some of these additional costs,” it said.