Where do we stand today?
With the continual monthly rise in fuel prices you might well wonder if it isn’t time to buy a horse to replace your motor vehicle. However, before you consider horse trading, let us look at some of the factors that brought us to this point.
On 5th June 2019, the coastal price of unleaded 95 petrol rose to R16.52 per litre. This is the 6th petrol price hike in as many months. However, some of us wonder why the price has escalated over 100 days when in the same period, the international price has dropped. Though we are holding our breath for a significant drop in the petrol price – the Automobile Association is forecasting an 86c drop per litre – we know that the weakening of the Rand impacts on the extent of the decrease in price.
But before we go there – where do we source our oil?
Sasol was established by the South African Government in 1950 to make South Africa less dependent on oil imports. Using coal liquefaction systems developed in Germany during World War ll, it is able to produce a third of our oil needs. The rest of our fuel is imported from Saudi Arabia, Nigeria and to a lesser extent Angola. There are some minor imports from elsewhere in the world as well. It is refined locally.
Petrol price woes – who decides our selling price?
The Department of Energy uses a formula to calculate our fuel price every month.
To establish a basic price for fuel, the department assumes we import our raw oil from the Mediterranean, Arab Gulf and Singapore. This gives the Department a basic price in US dollars. It is an assumption, as we do not actually always buy from this source. In fact, South Africa does business with at least 10 countries in its bid to source oil.
The long road home – what are the added costs involved?
To this basic price is added cost of insurance. Transport costs are added to cover the costs of moving the oil from foreign territories to the Durban, Cape Town or Mosselbay harbours. Storage at the harbour is required and transport and processing at a refinery adds additional charges to the bill. A conversion from US Dollars to South African Rand is calculated in the end. To this is added retail and wholesale margins.
This is not the end of the road – what about tax?
The government adds three taxes to the above:
- General Fuel Levy
- Road Accident Fund Levy
- Carbon Taxes
The reality is that filling up you ARV with petrol comes with a hefty R280 ticket, just in charges. These taxes are increased every year, often above the inflation rate.
Dear Mister President – can’t you drop the price, please?
During 2007 we consumed 11 billion litres of fuel. Because of price increases and a shrinking economy, we consumed only 7.5 billion litres by 2016. This drop in consumption forces the Department of Energy to increase taxes faster than the inflation rate, just to keep up the collections.
They could review the price formulation as well as the reasons for the drop in consumption. In fact, they did! However, since November 2018 when the review was completed, government has become eerily silent on the matter.
In the meantime… further afield – what do things look like elsewhere?
During the past 5 years, the UK Government has kept their taxes static, and their economy is less damaged by fuel increases. The economy suffers, because of the compound knock-on effect of rising transportation costs in all areas of private life, service provision and commerce – from manufacturing to retail, from marketing of services to our daily commute.
It is worth remembering, though, that comparisons between the local situation and elsewhere in the world are hard to make. Differences such as infrastructure for public and private transportation, distances to be travelled and diversity and safety of alternative means of transportation skew such comparisons.
So about that horse…
At NFS we do recommend diversification of assets. However, the SPCA may have something to say about subjecting a horse to peak hour traffic, even when it moves at a snail’s pace!