Domestic fuel price increases are making headlines in South Africa, with petrol, diesel, and paraffin reaching new highs.
The fundamental cause of the price rises is changes in the international crude oil price. The Russian war in Ukraine is causing an increase in the international price of crude oil.
It is expected that the crude oil price will remain high for the duration of the war.
Crude oil is priced in US dollars per barrel on a global scale. Recently, the price of a barrel of oil surpassed US$120. The crude oil price is not at its all-time high. On July 11, 2008, the nominal historic high of US$147.02 per barrel was hit.
The price of crude oil rose at the time due to military tensions with Iran. When adjusted for inflation since 2008, this equates to around US$200 per dollar in current terms. As a result, there is opportunity for future increases in crude oil prices.
The price of crude oil in US dollars is governed by international supply and demand forces.
International oil price pressure raises fuel landed costs in South Africa. The landing cost is translated to rands at the current exchange rate. Any decline in the rand’s currency rate against the US dollar translates into higher domestic gasoline prices.
Political and economic stability to ensure a steady (or even appreciating) currency rate is therefore critical in the domestic fuel price containment approach.
After determining the domestic base price for fuel, a number of levies, taxes, and margins are added to produce the pump price that the consumer pays.
To mitigate the impact of rising fuel prices, the government has waived a portion of the fuel (tax) levy as a temporary relief measure.
However, given the government’s poor fiscal condition, this cannot be done on a permanent basis.
Any permanent reduction in the government’s fuel charge will imply an increase in other government-levied taxes.
However, there is one fee in the fuel price cost structure that can be reconsidered. This is the cost that banks charge for accepting debit and credit cards.
To be sure, any reduction in this fee would have a negative impact on banks’ gross revenue, but it will also cut the cost of filling station operations.
What factors influence the price of gasoline?
The gasoline levies include transportation to inland provinces, which explains the price differential between coastal and inland districts. These charges are fixed and subject to change on a regular basis.
The most significant are the government’s fuel levy (approximately 20% of the retail price) and the road accident fund levy (about 11% of the retail price). These taxes apply to both gasoline and diesel.
Another significant levy is the allowable gross margin for filling station operators.
This levy amounts to around 10% of the retail price of gasoline, and it is established by setting the retail price per filling station in the case of diesel sales. Because only the wholesale price is regulated, filling station operators choose their profit margin on diesel sales.
The South African government decided to waive a portion of the gasoline levy as a temporary relief measure to ease the blow of higher fuel prices for consumers. However, when government funding is depleted, this measure is unsustainable.
The retail fee on petrol levied on filling station operators is presently R2.29 per litre. However, this is not the profit per litre of gasoline sold at the retail level.
This retail levy of R2.29 includes 87c per litre for the remuneration of filling station pump attendants and other administrative workers. South Africa has over 5,000 fueling stations, with approximately 60,000 pump attendants employed.
Furthermore, it is projected that these filling stations employ 15,000 to 20,000 administrative personnel.
What factors influence the South African fuel price?
The prices of regulated petroleum products are primarily determined by two factors: The external elements are the product’s dollar price on global markets multiplied by the US$/R exchange rate. Internal considerations include retail and oil firm marketing margins in rands, transportation costs, and taxes and levies.
Who sets the price of petrol in South Africa?
The Equalisation fund tax is typically a fixed monetary levy set by the Minister of Energy in consultation with the Minister of Finance. The levy revenue is mostly used to equalize fuel costs. Currently, there is no levy.
Where does SA receive its gasoline?
South Africa is a net importer of petroleum products, relying on imported oil to supply domestic demand. The Organization of Petroleum Exporting Countries (OPEC) members supply the majority of South Africa’s crude oil imports, with Saudi Arabia being the largest source.
