EDITOR – I can't be as brave as Vijay Surujpal and use my name as this would compromise my position and be a conflict of interest given my contractual obligations to various organs of the state.
However, I'm compelled by the fact that Vijay's article entitled Fuel Price Rip Off is so factually incorrect and misleading with extrapolations that make no sense whatsoever. He then concludes that we are being “drastically overcharged”…the current price of petrol should be in the region of R5 a litre…”
The factual position is as follows: Petrol and diesel prices are close to all time highs, causing SA motorists significant discomfort. While most of us are acutely aware of changes in fuel prices, few understand how these prices are set and what the broader impact of such price changes is.
The current formula for determining the price at the pump was set in 2003 and consists of international and domestic components. The international component is the basic fuel price(BFP), a formula that reflects the real cost of importing one litre of refined oil and transporting it to SA's coastal refineries. The main determinant of refined oil is obviously crude oil.
The benchmark global price of crude oil that is relevant for SA is the Brent price, set in US$ per barrel. As an aside, there are different types of crude, depending on viscosity and sulphur content, thus some types of crude oil are known as “light” or “sweet”. Refineries are usually set up to process a specific type of crude oil, and different types of crude oil trade at different prices. The price of crude oil and the cost of refining it are determined by supply and demand in the global markets.
Refined oil is priced in US$, so the rand-dollar exchange rate will be the other key determinant of the basic fuel price.
The international component – (BFP)- makes up 60 per cent of the pump price. The domestic factors are made up of taxes and levies (24 per cent) including the general fuel levy, the Road Accident levy, and customs and excise duties, and also inland transportation costs (two per cent), wholesale margin (two per cent), storage and distribution (two per cent), Retail margin (10 per cent) and zone differential in Gauteng (two per cent).
Transportation costs include the cost of moving fuel from coastal refineries to inland depots, and the subsequent cost of storage at, and distribution from the depots. Lastly, because the liquid fuels industry in SA is regulated, fixed gross profit margins for wholesalers and retailers are built into the fuel price – from which the retailers need to recover the costs of wages for petrol pump attendants.
Levies and taxes are generally set annually by the Minister of Finance in the budget speech and take effect on the first working day of April. The fuel and Road Accident levy has increased significantly over the years.
A final thought – the petrol price affects all South Africans, directly or indirectly. While many do not understand how the petrol price is determined, it is clear that motorists have responded to changes in the petrol price and have been purchasing less petrol since June 2011 – R11.6 billion to R10.4 billion in June 2014 and there's scope for motorists to further reduce petrol purchases, especially as public transport options improve in major cities.
The general understanding of how petrol price changes impact the economy – in short higher fuel prices leads to consumers spending less on other items, if they cannot control their transport costs. Petrol has a 5.7 per cent weight in the basket of goods and services that determine the consumer price index (CPI). In the producer price index(PPI) for final manufactured goods, the petrol price has a 3.3 per cent weight and diesel a 2.1 per cent weight.
I trust that succinct essay corrects the misunderstanding and conspiratorial debates that cause more bad than good.
Sicario
Durban
