The department of mineral resources & energy has not yet published changes to fuel prices that are due to take effect on Wednesday, but the adjustments are expected to be “fairly steep”.
However, there were reports on Monday night suggesting that Nosiviwe Mapisa-Nqakula, speaker of the National Assembly, had granted a special request for finance minister Enoch Godongwana to address parliament on interventions that would help soften the impact of expected fuel price hikes of almost R4/l.
The date for the address is still to be fixed. The DA has also approached parliament for a debate on the fuel price issue.
High global demand coupled with constrained oil supply and refining capacity will probably push global fuel prices even higher this year which will also result in further increases to local petrol and diesel prices.
The price for petrol was set to increase to over R25/l , which would put the total price increase since January at about 25%.
The industry is still awaiting an announcement from the government about whether the fuel price holiday — the R1.50/l temporary reduction in the general fuel levy — which ends on May 31 — will be extended, or if government will introduce other measures to lessen the impact of high fuel prices on consumers.
The SA Petroleum Industry Association (Sapia) expects the government this week to announce whether the short-term relief measures to alleviate fuel-price increases will be made permanent, said executive director Avhapfani Tshifularo.
“The communication from government was that the [temporary fuel price relief] was just for two months. We are waiting to hear what government’s latest stance on this is since there have been reports of discussions in government about this. For now, the official stance is that there will not be an extension [of the relief measures], but this is subject to further announcements from government.”
In an interview with Business Day at the African Development Bank 2022 annual meetings in Accra, Ghana, last week, Godongwana said the government was looking at proposals to mitigate high fuel prices and that a proposal, to be decided on by the National Treasury and the mineral resources & energy department, to alleviate rising prices would be announced this week.
In his budget speech in February, Godongwana announced that his department had begun engaging with mineral resources minister Gwede Mantashe to review how the fuel methodology price was calculated.
The Treasury said that a comprehensive review of the fuel price could significantly reduce the burden of administered price inflation.
Research on fuel price regulation has found that a combination of regulatory amendments could reduce the petrol price by about R1/l by 2028, according to the Budget Review.
But according to Sapia’s Kevin Baart, given the high exposure of SA’s basic fuel price to international factors there is little the government could do that would “chop” more than a few cents from the price.
External factors such as the dollar price of petroleum products on world markets, the prevailing rand/US dollar exchange rate and shipping costs account for about 54% of the basic fuel price and most of the monthly movements in prices, and there was little that the government or industry could do to amend these costs, Baart said.
SA relies on imports for 70% to 80% of its petroleum needs, and changes to the price structure for imported fuel could affect delivery of oil into the country and could result in a shortage of fuel here, he said.
Other costs that make up the fuel price include levies and duties (27%), magisterial zone differentials for the cost of transporting fuel across various distances, and wholesale and retail margins.
In 2019, duties and levies on fuel contributed R120bn to the fiscus, which was about 10% of national income.
Global oil markets were already tight before Russia’s invasion of Ukraine, with global crude oil stocks “in the middle- to low-end of the five-year range”, said Saad Rahim, chief economist at Trafigura, the world’s second-largest private oil trader.
One of the reasons why fuel prices have increased so much this year was that despite the tight market and high prices, people were not yet changing their consumption behaviour, indicating that prices could still increase further. “People are complaining but not changing their behaviour, this is why prices could still move substantially higher,” he said.
According to Rahim, over and above global supply constraints for oil, there was also a lack of refining capacity globally to respond to an increase in fuel demand. “There is almost no spare capacity — this is because there has been massive underinvestment in the petroleum industry for about a decade,” he said.
Update: May 30 2022
This story has been updated with new information.
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