The Treasury is considering selling more strategic oil reserves or making budget adjustments to fund new measures to curb rising fuel prices, just more than a week after the country outlined plans to extend the reduction in the general fuel levy at an additional cost of R4.5bn.
“It may well be that the department of energy may spare some more of the strategic oil to be sold. If that doesn’t happen, we will have to find a way of funding it from the fiscus through the adjustment estimates,” finance minister Enoch Godongwana told Business Day. “It’s going to require solutions because we don’t know when the war [in Ukraine] is going to end,” he said.
Godongwana’s comments on the sidelines of the ANC provincial leadership contest in Limpopo come more than a week after his department proposed a two-month extension of the plan that started in March to cut R1.50/l off the petrol pump price to soften the blow of steeply rising prices.
The R6bn reprieve was funded through the sale of a portion of the strategic crude oil reserves. But the extension of the reduction in the fuel price levy, which is set to end in August, is unfunded, suggesting that Godongwana may be forced to dip into the fiscus or cut spending elsewhere.
Even though the government said in May the sale of strategic fuel reserves on its own will not be enough to cover the cost of the extension, Godongwana’s comments suggest scope may exist for more to be sold and the department of mineral resources & energy to be persuaded to help plug the gap with the sale of reserves.
SA has 10-million barrels of crude oil in its strategic fuel reserve terminal, of which 8.7-million barrels is accounted for as inventory and the rest as working stock, mineral resources & energy minister Gwede Mantashe said in a parliamentary reply to the DA in April.
Any sale of more of the strategic oil reserves would require the approval of Mantashe’s department. It is the shareholder of the Central Energy Fund (CEF), which is responsible for managing the country’s strategic crude oil stockpile.
The Treasury has not yet approached his department, said Mantashe, who further told Business Day that the department is not opposed to the proposal, because the country is in a crisis.
“It’s not a question of yes or no. It’s about the quantity of reserves [that should be sold]. We are not hostile [to selling the oil],” he said. “They want us to sell the oil and then get the money to replace what they spent.”
SA is not alone in coming up with fuel relief measures to cushion consumers from the impact of soaring oil prices after the Russian invasion of Ukraine. But the danger for the cash-strapped SA government is that if markets do not revert to earlier levels, pressure will build for the temporary measures to become permanent.
Godogwana said that if the conflict continued, the necessary budget adjustments would have to be made to provide a long-term solution. Any announcement would be made in the medium-term budget policy statement.
The R1.50 reduction in the fuel levy will continue to July 6, and then be adjusted to 75c/l until August 2, before being withdrawn the next day. The withdrawal of the temporary levy relief as planned at the end of May would have led to petrol prices jumping about R4/l. As it were, the price of petrol increased at the beginning of June by between R2.33/l and R2.43/l, while diesel and illuminating paraffin rose by R1.10/l and R1.56/l, respectively.
The demand-side management levy of 10c/l on inland 95 octane unleaded petrol was removed from June 1. Measures to be implemented in the coming months include a 3c/l reduction in the basic fuel price.
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