Record fuel price hikes have renewed urgency for a fundamental overhaul of how SA’s fuel prices are calculated and regulated, as embattled consumers experience fresh pain in the petrol forecourt.
Fuel price increases this month — which leapt R1.21/l — are at a pace never seen before, according to the AA’s Layton Beard leaving the petrol price for 95 octane petrol inland now at a record high of R19.54.
The price hikes will cost even the most humble of little runarounds with a 40l fuel tank roughly R780 to fill up. To fill up a minibus taxi or any large SUV with a 70l fuel tank is going to cost almost R1,400.
Poor commuters are going to feel these increases the most, given that according to Stats SA, the country’s poorest households spend more than 20% of their incomes on transport.
Beard told Business Day: “We need to look at the current pricing model and we need to audit all the existing elements of that model to determine whether every component of the fuel price is necessary, whether every component is calculated correctly.”
Though the monthly changes consumers feel in their pockets is thanks largely to dynamics of the rand-dollar exchange rate and global oil prices, onerous taxes such as the Road Accident Fund (RAF) levy and the general fuel levy, have long been a thorn in motorists’ sides.
But the extensive review would need to include how the basic fuel price is calculated, as well as all the wholesale margins for wholesale, retail and distribution activities in the value chain that fall under the department of mineral resources & energy’s regulatory accounting system.
The taxes, levies and margins for various elements now outstrip the basic fuel price, which accounts for just less than 48% of what motorists pay at the pumps.
The DA’s Kevin Mileham, the shadow minister for minerals and energy, has written to minister Gwede Mantashe to institute a review — which, he said, must include every possible role-player in the fuel sector — a call that has thus far remained unanswered.
Academic research done in 2020 for the UN University World Institute for Development Economics Research highlighted several problems with SA’s fuel price structure, which, it argues, has an opaque history and does not serve consumers as it should.
Among the problems it highlights is the basic fuel price, which is calculated on the basis of import parity pricing, or what it would cost for an importer to buy the petrol from an international refinery, insure and transport the product to SA shores.
According to the researchers, government policy in SA has been driven by the need to support profitability of investors — including the owners of SA’s six oil refineries — in SA’s fuel value chain rather than the protection of consumers against excessive pricing.
Since 2006, however, SA moved from being a net exporter of refined products to a net importer. This calls into question “the appropriateness of continuing an import substitution policy approach, partly because it is a blunt instrument which appears to be inflating petrol prices across the economy without achieving the intended policy objective of expanding refinery capacity in line with domestic demand”, the researchers said.
The basic fuel price is calculated using, among other elements, petrol prices in source markets — namely the Mediterranean, the Arab Gulf and Singapore.
Though the paper notes that the lack of transparency about the system hampers precise estimates, the researchers calculated that corrections modelled indicate that petrol prices could be 70c/l to 80c/l cheaper.
The research also highlighted the problem of the regulation of the sector by a politician in the form of the minister, notably as intentions to fold fuel price regulation into the ambit of the National Energy Regulator of SA have never been implemented.
The effect of taxes on fuel prices cannot be ignored. According to the Organisation Undoing Tax Abuse (Outa), the combined cost of the RAF and general fuel levy has risen 126% in a decade.
While scrapping the fuel levy is a difficult ask given it is a reliable source of revenue for the government and is easily collected, the AA wants to see more transparency in how the money is allocated. It also wants increases on the tax to be frozen for the next five years until the allocation of the funding has been reviewed.
The amount paid in to the moribund RAF must also be reduced, argues the AA — and a way to achieve this is the semi-privatisation of the fund — which it told parliament in August would drive down costs and bring better oversight and management.
More broadly, reducing the impact of the fuel price on the economy requires more than just addressing its cost elements, says Beard.
It includes reducing SA’s reliance on road freight and a return to rail, which in turn means making state logistics giant Transnet more reliable. It means reducing reliance on the RAF by making SA’s roads safer and improving policing. It requires an efficient, reliable and cost-effective public transport system, namely an expanded bus network, according to Beard.
“There are a million different things that need to happen,” he said.
Update: November 8 2021. Has been updated to clarify information that had been edited out of the story.
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