Petrol prices in South Africa have increased sharply since the start of the Middle East conflict, drawing closer attention to the local and international factors that contribute to the price at the pump.
For motorists, this price is more than just the cost of fuel, but rather the result of several global and domestic forces, and a range of government levies and taxes.
These factors include fluctuating crude oil prices, the strength of the Rand, and the intricate costs of shipping and storage.
According to the Department of Mineral and Petroleum Resources (DMPR), the price is calculated using an import parity model designed to balance international competitiveness with local economic realities.
The principles that determine the Basic Fuels Price (BFP) represent the realistic, market-related costs of importing liquid fuels.
“The petrol price in South Africa is therefore directly linked to the price of petrol quoted in US Dollars at refined petroleum export-oriented refining centres in the Mediterranean area, the Arab Gulf and Singapore,” the DMPR explained.
As a result, domestic fuel prices are influenced by international crude oil prices and the international demand and supply for petroleum products based on the Rand/US Dollar exchange rate.
“The import parity principle is an elegant, arms-length method of basic fuels price determination to ensure that local refineries compete with their international counterparts,” the department noted.
“This promotes cost efficiency and astute crude acquisition strategies to ensure survival in a volatile and competitive international environment, thus eliminating domestic inflationary pressures.”
International factors that influence South Africa’s petrol price
On its official website, the DMPR lists several international factors influencing the local petrol price paid at the pump.
Beyond the product prices quoted daily, the freight costs involved in transporting refined petroleum from export refining centres to South African ports are adjusted monthly and contribute to the cost of buying fuel.
To protect from losses, countries also pay for insurance during transit, which is around 0.15% of the freight value, as well as covering other costs, including surveyors’ and agents’ fees and laboratory costs.
During transit, a 0.3% ocean loss allowance is calculated based on the freight and insurance values, which compensates for typical uninsurable losses.
When a shipment arrives on our shores, South African harbour facilities are utilised to offload petroleum products from ships into onshore storage facilities, necessitating wharfage fees.
The cost to utilise harbour facilities is based on a tariff set by the National Ports Authority of South Africa.
During offloading, should a ship “overstay” in a local port, a demurrage charge is applied to the total transport costs, as determined by the World Scale Association.
Once offloaded, storing and handling fuel at coastal facilities also requires compensation – around R2 per litre – and is applicable for 25 days.
This fee is adjusted on an annual basis and is based on increases in the Producer Price Index (PPI).
The final international bearing on South Africa’s petrol prices is the stock financing cost, which is based on the landed cost of refined petroleum products, fees for 25 days of stockholding, and the ruling prime interest rate less 2%.
Domestic elements in the local petrol price
The local fuel price is not only determined by international factors but also includes inland transport costs, applicable taxes, and regulatory costs.
These can vary based on the magisterial district zones where petrol stations are located.
Refined petroleum products are transported by road, rail, pipeline and by a combination thereof from coastal refineries to inland depots, which explains why inland fuel costs are marginally higher than coastal rates.
Fuel sales in South Africa also carry a fixed wholesale margin, calculated on an industry-average basis, aimed at generating a benchmark return of 15% on depreciated book values of assets.
This determination provides allowance for additional depreciation, but before tax and interest payments.
Once the wholesale margin is added, a fixed retail profit margin is determined based on the costs incurred by the petrol station operator.
For this, all proportionate driveway-related costs such as rental, interest, labour, overheads and entrepreneurial compensation are taken into account.
Added to these costs and fees are several local levies – the General Fuel Levy, Road Accident Fund Levy, Carbon Fuel Levy, and Customs and Excise Levy.
These taxes are collected on every litre of fuel and fund general government spending, the Road Accident Fund, emissions reduction, and the South African Revenue Service (SARS).
Currently in effect due to sky-high global fuel prices is the Slate Levy, applicable on fuels to finance the Slate account balance when it is in a negative balance.
This is adjusted daily over a review period – most commonly a monthly cycle – adjusting in line with monthly petrol price changes.
Fuel price adjustments are effected following a review period of either an under-recovery or over-recovery.
When the BFP is in an under-recovery, fuel consumers are paying too little for the product on that day, while in an over-recovery, consumers are paying too much.
“These calculations are done for each day in the fuel price review period, and an average for the fuel price review period is calculated,” the department explained.
“This monthly unit over/under recovery is multiplied by the volumes sold locally in that month, and the cumulative over/under recovery is recorded on a cumulative over/under recovery account.”
Loading ...
