As consumers and businesses brace for even higher petrol prices and the government upgraded its inflation forecast, ministers said they are considering a suspension of the fuel levy to ease the impact of surging oil prices.
The price of Brent crude oil soared towards $140 a barrel in the wake of the Russian military aggression in Ukraine, which is approaching its third week, fuelling concern of a spike in inflation across the world.
As petrol prices have jumped above R20/l in some parts of the country, SA’s economy, which is still below its pre-Covid level, faces additional pressure from potentially steeper interest rate increases by the Reserve Bank.
Though crude has dropped below $110, it is still up 28% in 2022 and about 43% from 12 months ago.
The government is considering measures to shield consumers as the uncertain environment means prices can still rise dramatically.
Minerals & energy minister Gwede Mantashe told MPs on Tuesday that he and finance minister Enoch Godongwana are discussing ways to reduce the fuel price, such as the suspension of taxes and the fuel levy, which represent 30% of the pump price of petrol.
Other options under discussion, Mantashe said, are to remove the demand side management levy of 10c/l on 95 octane unleaded petrol; introduce a price cap on unleaded 93 octane; or make part of the state’s strategic oil stock available to local refineries.
However, a suspension of the fuel levy would have serious implications for the fiscus, which is projected to derive R89bn in 2022/2023, or about 6% of total tax revenues, from that source. In the February budget, the Treasury said it would forsake R3.5bn by freezing the fuel levy and decided on no increase in the Road Accident Fund (RAF) levy, the first time in 32 years that the government has not increased fuel taxes.
Treasury senior economist Clinton Joel told the meeting of parliament’s mineral resources & energy committee that the severity of the effects of the war on the economy will be determined by its duration and its impact on global supply chains and financial market conditions.
The Treasury estimated that inflation could reach between 5% and 5.5% in 2022 compared with the 2022/2023 budget projection of 4.8%. The central bank’s target is 3%-6%, and the reading in January was 5.7%.
The department of mineral resources & energy and the Treasury have also been in discussions over possible changes to regulated margins, which could reduce the petrol price.
The department undertook a review of the basic fuel price in 2018, but deputy director-general Tseliso Maqubela said the outcome was “fairly disappointing”. If the recommended changes were introduced, they would have netted only 3c a litre for consumers.
The department had then decided on a more comprehensive review.
Maqubela said increases in the fuel price in excess of R2/l could be expected, but developments in China, where the economic hub of Shenzhen has been locked down due to Covid-19 infections, could counteract this. This was cited in international media among the reasons for a drop in prices on Tuesday.
SA does not produce its own oil, and fuel security was further threatened in February when Shell and BP said they would put Sapref, which is responsible for 35% of the country’s refinery capacity, on hold for an indefinite period.
The viability of refineries in SA has came under pressure from global crude oil prices, volatile and often violent labour relations, and lack of electricity security as well as regulations that lowered the sulphur content allowed in diesel fuel. It’ is not clear where the government will find buyers that can overcome these difficulties and still run the refineries profitably.
Maqubela said the refinery in Durban could not be allowed to close and a buyer had to be found. Glencore had decided to restart its Astron refinery in Cape Town, which was damaged by an explosion in July 2020, and had invested in repairing it.
Other measures that would have to be considered, Maqubela said, are to encourage people to work from home to reduce consumption; the enforcement of speed limits; and a restriction on how many litres each motorist is allowed to purchase per visit to a petrol station.
Maqubela said the latter would be implemented only if the situation deteriorates, and he does not think this is likely.
“We are not there. We don’t think we will get there.”
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