Fuel price hike will impact SOEs, Pravin Gordhan says

The hike in fuel prices will impact state-owned entities (SOEs), Public Enterprise Minister Pravin Gordhan told parliament, News24 reports.

The impact on SOEs could reach millions.

The minister told parliamentarians in a written response that the hikes would have a significant impact on the turnaround strategies and operations of SOEs under his portfolio and would push Eskom to tighten its belt and have an impact on the turnaround plan in those areas targeted for cost reduction; SOEs would be squeezed for the sake of economising because of how the cost of fuel would erode savings.

During the 2017/18 financial year, the power utility spent R3 billion on fuel-related goods: R391.9 million on open cycle gas turbine fuel, R2.1 billion on heavy fuel, and R567.9 million on motor fleet fuel, Gordhan said.

For the same period, Eskom’s exposure to the fuel price hikes stood at an estimated R97.2 million.

Gordhan was quoted as saying: “In the 2018 financial year, the three fuel categories listed above made up 2.31% of Eskom’s total operating costs. If it were not for the fuel increase, the fuel cost proportion would have been 2.24%.”

The minister, however, said if the increases in fuel prices stayed below inflation levels then the turnaround strategies at Eskom would not be at risk.

Gordhan said SA Express took two months of data to get to R7.78 per litre.

“If the actual average for April and May 2018 is multiplied by the fuel burn, the cost increases by R97 million, which will erode profit margins; and turnaround strategies will be adversely affected,” he said.

Denel spent R6.5 million of fuel during the 2017/18 financial year, Gordhan said.

Meanwhile, it was reported last week that more fuel price hikes are on the way courtesy of a weaker rand. This is according to the Automobile Association (AA), which was commenting on unaudited month-end fuel price data supplied by the Central Energy Fund (CEF).