Petrol price in South Africa has increased by 86% since January 2021.
Ever wondered how the fuel pricing model works in South Africa?
A lot goes into the fuel price. First question. Is fuel price in South Africa regulated?
Petrol is regulated at retail level
Diesel is not regulated, but publish the wholesale reference price
Illuminating Paraffin is regulated at retail level.
There are three basic forms of fuel pricing globally. These are:
Ad hoc pricing: prices are set irregularly, with no transparency. This is common in countries that have own oil and is highly subsidised.
Formula based/automatic pricing adjustments: prices are published, but not the formulas in some countries. South Africa publishes both prices and the formula.
Liberalised pricing system: the market set the prices, but there is a formula. This is practised in Australia.
In March 2022, a fuel levy relief was implemented. This relief was a R1.50 per litre reduction in the fuel levy.
Before this announcement, +-35% of the retail price of fuel was taxes/levies of:
• General Fuel Levy:R3.85
• RAF levy:R2.18
• Customs+excise levy:R0.04
• Carbon tax: R0.08
In 2021/22, taxes accounted for an average 34% of the price of petrol and 38% of the price of diesel – a ratio that is below that of India and Mexico, and far lower than the 60% common in Europe.
For the first time, fuel prices in SA exceeded R20/l for inland unleaded petrol in Dec 2021 due to higher crude oil prices and exchange rate depreciation. To support consumers and economic recovery, no increases were made to the general fuel levy on petrol and diesel for 22/23.
According to the Department of Mineral Resources and Energy, fuel price consists of four broad elements:
• Basic fuel price
• Taxes and levies
• Retail and wholesale margins
• Storage and distribution costs.
- The Basic Fuel Price (BFP) is based on the import parity pricing principle i.e. what it would cost a South African importer of petrol to buy the petrol from an international refinery, transport the product from that refinery and insurance.
In a nutshell, basic fuel price is related to the costs of purchasing petroleum products from international markets, and the costs related to shipping these products to SA. This cost is largely influenced by the international price of crude oil and the R/$ exchange rate.
The basic fuel price is adjusted on the first Wednesday of a month. Any over/under recoveries incurred in a fuel price review period will be cleared in the next one.
Other factors that influence the basic fuel price are:
• International crude oil prices,
• International product supply/demand balances,
• Product inventory levels,
• Rand/US Dollar exchange rate,
• International refining margins,
• Weather patterns in the Northern Hemisphere.
BFP quoted in $/barrel is converted to US cents/litre by applying the international conversion rates and is then converted to ZAR cents/litre by applying the applicable ZAR/$ exchange rate. To arrive at the final petrol pump price levies and margins are added to the BFP.
- There are different fuel levies in SA:
2.1 Petroleum products levy: to reimburse the pipeline users for the applicable NERSA tariff on transporting fuel through the pipeline. Levy set by the Ministers of Energy and of Finance in line with the expenditure budget of NERSA.
2.2 IP Tracer dye levy: reimburse oil industry for buying IP tracer dye and to inject it into IP to curtail the mixing of IP and diesel
2.3 Slate levy: finance the cumulative under recovery. Only applicable when the cumulative Slate balance exceeds R250m (under recovery).
2.4 Fuel levy: tax levied by Government.
2.5 Custom and Exercise levy: a duty collected in terms of the Customs Union Agreement.
2.6 RAF levy: compensates road users for losses or damages caused by motor vehicle accidents.
The fuel levy and RAF levy two biggest levies.
Basic fuel price fluctuates more than general fuel levy and RAF levy. This is because the basic fuel price is set every month by the Dept of Mineral Resources and Energy. Changes to the general fuel levy and RAF levy are announced once a year during the National Budget Speech.
According to StatsSA, the RAF levy has increased by 425% since January 2008, outpacing the general fuel levy which is up 225% and the basic fuel price is up 119%. The general fuel levy generated R80 billion for government in 2019/20, accounting for about 6% of total tax revenue.
2019/20 fiscal year, RAF levy generated R41,2bn for RAF. RAF levy is the Fund’s primary means of income, accounting for 99,8% of total revenue. According to the RAF’s annual report, 93% of the income from the levy was used to pay claims.
Road Accident Fund’s biggest limitation is the lack of payment ceilings for claimants.
One of the biggest SA RAF payout went to a Swiss resident, Joachim Schoss who landed a R500m settlement after losing an arm and a leg in a motorcycle accident. The man wanted a Billion Rands.
- Wholesale margin: it is a fixed maximum monetary margin. The formula used to determine the wholesale margin is based on a set of Guidelines, namely the Marketing-of-Petroleum- Activities Return. The level of the margin is calculated on an industry average basis.
It is aimed at granting these marketers a benchmark return of 15% on depreciated book values of assets, with allowance for additional depreciation, but before tax and payment of interest. Should the industry aggregated margin be between 10 and 20 percent, no adjustment is made to the margin, if it is below 10 percent or above 20 percent, the margin is adjusted to a level of 15 percent.
- Retail margin: it is fixed by the DoE and is determined on the basis of the actual costs incurred by the service station operator in selling petrol. In this cost structure, account is taken of all proportionate driveway related costs such as rental, interest, labour, overheads.
In SA, the important months are;
• April: transport tariffs, fuel levy and RAF adjustments
• September: Forecourts attendants wage adjustments
• December: wholesale and retail margins adjustments including secondary storage and transport
• Quarterly: Octane differential adjustments.
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