Government extends temporary reduction in the fuel levy

The Ministers of Finance and Mineral Resources and Energy have announced that the temporary reduction in the general fuel levy of R1.50 per litre will be extended.

Motorists will get a R1.50 per litre reprieve for one month, starting on 1 June 2022 until 6 July 2022.

Then, the second reprieve of 75c per litre will be implemented from 7 July 2022 until 2 August 2022.

Minister Enoch Godongwana and Gwede Mantashe had announced the temporary reprieve on 31 March 2022, which was implemented back in April.

The economy needs to adjust to the new reality

Motorists were warned the relief was just temporary and that normal fuel prices would resume from June.

The relief measures were funded by liquidating a portion of the country’s strategic crude oil reserves.

But since that announcement, the Russia/Ukraine conflict has shown no signs of slowing down leading to global supply chain bottle-necks and a tightening of global monetary policy.

“These conditions have led to further unfavourable changes in the two key drivers of the regulated petrol price, the exchange rate and the global oil price,” said the ministers in a joint statement.

“These events have led to even larger increases in fuel prices compared to a few months ago when the temporary fuel levy relief was introduced.”

If temporary relief measures had been suspended as planned, petrol prices would have soared close to an additional R4 per litre, pushing the prices of 95 octane unleaded petrol (ULP) to above R25 per litre.

This means consumers would have faced an increase of just under 20% next month.

But, consumers are warned the temporary relief would be withdrawn from 3 August 2022.

“The revenue foregone from the extension of the relief is estimated at R4.5 billion. Unlike the previous
announcement, this proposal is expected to have an impact on the fiscal framework as it will not be fully
funded through the sale of strategic oil stocks,” said Godongwana and Mantashe.

“Government remains committed to the fiscal framework outlined in the Budget 2022. The proposed temporary reduction in the fuel levy will be accommodated in the current fiscal framework in a manner that is consistent with the fiscal strategy outlined in the Budget.”

Any changes, if required, will be announced at the time of the 2022 Medium Term Budget Policy Statement.

More relief measures to come

On Monday, the South African Petroleum Industry Association warned that fuel prices would only get worse in the coming months.

In addition, there was very little government could do to provide relief for cash-strapped consumers.

“The economy will need to adjust to this new reality. From 1 June 2022, the DMRE will remove the demand side management levy of 10c per litre that has been applied to inland 95 ULP,” said the ministers.

The DMRE also proposed a 3c per litre decrease in the Basic Fuel Price in the coming months.

“Government intends to continue with consultations and proposals to remove the price cap on 93 ULP, which will partially deregulate the market and introduce more competition to lower pump prices.”

The department is also reviewing the Regulatory Accounting System (which includes the retail margin, wholesale margin and secondary storage and distribution margins) to assess the potential to lower margins over the medium term.

“Government will continue to monitor the impact of the Russia/Ukraine conflict and zero-Covid-19 policies, which continue to have an impact on energy and food prices and result in supply chain shocks, with the aim of investigating further measures to make households and businesses less vulnerable to such
shocks.”

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