The government has announced that it will be investigating the price of fuel in South Africa as part of an attempt to reduce the financial burden on households.
During his address at the formal opening of Parliament yesterday (18 July), President Cyril Ramaphosa outlined the new Government of National Unity’s (GNU) plan to tackle the cost of living crisis in South Africa.
One of the strategies put forward is for the GNU to examine the way that the cost of fuel is calculated in order to identify where prices could be reduced.
A much-needed strategy
South Africa’s sky-high petrol prices have dominated headlines for the last three years as the cost of a litre has continued to reach new record levels.
As of July 2024, a litre of petrol 95 retails for R23.26 at inland rates, while diesel 0.005% is resting at R20.91 per litre.
Diesel prices in particular have a ripple effect across the economy as it raises the cost of transporting goods, which exacerbates the cost of living crisis with higher shelf prices for consumers.
While the GNU may be composed of 10 minority parties with their own points of view, Ramaphosa said that the parties have agreed to a minimum set of goals and targets that will unite their efforts to improve the country.
All of the objectives listed in the president’s speech are centred around reducing living expenses and stimulating economic growth, and will be carried out over the course of the next five years by the government’s various departments, regardless of the ministers in charge, said the president.
“As the Government of National Unity, we will look to expand the basket of essential food items exempt from VAT and undertake a comprehensive review of administered prices, including the fuel price formula, to identify areas where prices can be reduced,” said Ramaphosa.
However, no further elaboration was given regarding how the GNU will attempt to recalculate the cost of petrol, diesel and illuminating paraffin in South Africa.
There are several factors that affect the price of fuel in South Africa, starting with external elements like the international trading price of crude oil and the rand/US dollar exchange rate, which determine the cost of importing the black gold.
Within our borders, the price of every litre is determined based on four main components, which are as follows:
- General Fuel Levy (GFL)
- Road Accident Fund (RAF) Levy
- Basic fuel price (BFP)
- Wholesale and retail margins, and transport and distribution costs
In 2020 and 2021, the government elected not to increase the GFL, which goes towards the national treasury, as part of an economic relief effort during the pandemic years, and it’s possible the same strategy could be repeated over the next five years.
Furthermore, in 2022 the government proposed three changes that could help to reduce fuel costs, including the introduction of a price cap, a proposal to stop publishing guidance on diesel prices, and a process to review the Regulatory Accounting System (RAS).
These ideas were proposed following Russia’s invasion of Ukraine in February 2022, which led to several fuel hikes over the course of the year as international oil supplies were disrupted.
The National Treasury suggested a cap on the price of petrol 93, which would allow retailers to sell the unleaded fuel below the currently regulated margins, while removing the guidance on diesel prices would promote competition between service stations with the goal of eliciting better rates at the pump.
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