In 2018 the department of mineral resources & energy published a discussion document for the review of SA’s basic fuel price structure. It focused on possible amendments to the international price component such as the reference markets used, shipping, insurance and demurrage.
Five years later these suggestions are yet to be implemented.
The issue was subsequently debated in parliament and in last year’s budget the Treasury announced plans to review the fuel price, quoting research that showed a combination of regulatory amendments could reduce the petrol price by more than R1/litre.
The Treasury said at the time that apart from reviewing the basic fuel price, it would also consider changes to the methodology underlying regulated margins and a review of the Road Accident Fund levy. This review has also not yet materialised.
Fuel price increases such as those this week reverberate through the economy. They push up household expenses and costs for businesses, driving up inflation. It becomes more expensive to go to work and food costs more. They deliver a double-whammy for businesses that buy fuel for generators to keep their doors open during load-shedding.
There is a clear case for exploring ways to lower fuel prices. The government, civil society and the fuel industry all agree that fuel prices need to be looked at. But still the government seems to be stalling. Perhaps the reason there has been little action from the Treasury and the department of mineral resources & energy is because they know the results might show the opposite of what they want to see.
Such a review, fuel retailers believe, will probably show they are under-recovering on current retail margins, which would mean the fuel price would have to go up.
SA has lost most of its refining capacity and is almost entirely dependent on fuel imports. This means local fuel prices are exposed to international oil prices and the relative strength of the rand against the dollar. These factors drive the basic fuel price which is about 50% of the total fuel price. The rest of the price is made up of levies (general fuel levy and Road Accident Fund) which account for about 30% of the price, inland transport and retail margins paid to fuel station owners (about 10%) and secondary storage costs and customs and excise duties.
It seems the promise government wants to make with a fuel price review and to lower prices can most easily be delivered by downsizing its own slice of the pie.
There is a degree of consensus that changes to the Road Accident Fund can offer benefits. But for this to happen, the fund must be better managed, road safety must be improved (better policing and fixing potholes) to reduce demand for the fund and third party insurance must be made compulsory.
None of this will be easy, but the absence of quick fixes should not further delay the government’s promised fuel price review. If anything, it makes it more urgent.
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