The Department of Mineral and Petroleum Resources is reviewing the local fuel price mechanism with the process to be completed in March next year.
This according to the department’s Director of Fuel Pricing Mechanism, Robert Maake.
Maake explained that the price of fuel is the end result of a multitude of global and domestic forces ranging from the fluctuating price of crude oil and the strength of the Rand to the intricate costs of shipping, storage, and a series of government levies and taxes.
“Our pricing formula is based on two components. One of them is the import part where all the costs associated with importing petroleum products into South Africa is accounted for.
“The second part is the local factor. What changes on a monthly basis is the international component driven mainly by the oil price and the Rand/Dollar exchange rate. What is happening now is the very high oil price due to the war in the Middle East which is driving the [escalating] fuel prices and the weaker Rand,” he said.
While the international factors, including the price Brent Crude Oil, demurrage rates and freight costs, are set internationally, the local factors are under consideration.
“The main one for us in the department is the review of the fuel price mechanism. What we are going to be doing now is to review how the industry margins are calculated in South Africa. The wholesale margins, retail margins, secondary storage [and] secondary distribution.
“That process has started. We have already signed a service level agreement with a service provider and we expect that work to be concluded by March 2027,” Maake revealed.
In the immediate term, government has already announced the temporary reduction of the general fuel levy by R3 to cushion consumers.
“In the short term it means that consumers are actually paying R3 less for petrol and diesel at the service stations which is useful for households and motorists. It is difficult at the moment to say how government will intervene [in the long term] and what the next step will be,” Maake said.
Paraffin pricing
Turning to the price of paraffin, Maake explained the influences which paved way for the fuel source to increase by R11.67 for wholesale and some R15.60 for the Single Maximum National Retail Price for Illuminating Paraffin.
“Paraffin is not taxed so the relief measure was to reduce the fuel levy and there’s no fuel levy on paraffin. It is already zero rated so the same cannot be applied to paraffin. We need a different mechanism for paraffin.
“The reason why paraffin has almost doubled in price is because from a refinery production point of view, paraffin and jet fuel, when they come from the refinery, they are known as dual purpose kerosene so it depends on the final use at the end of the day.
“The challenge we had was that there was a demand for air travel last month globally, particularly in Europe where they were coming from their winter season to…where they wanted to travel.
“Unfortunately, because of the winter, some of the major refineries had closed down due to the very cold winter season where they could not operate. So there was a shortage of jet fuel and as a result, both the price of jet fuel and paraffin shot up,” Maake explained.
He added that despite these factors, the department is having “sleepless nights” on how to bring relief to consumers of paraffin.
“We are looking at what other mechanisms we can propose. The first one of zero rating it is fine because there are no taxes on paraffin but what is the next one? Maybe we can look at the indigent framework where paraffin users register and get direct support from government?
“[Also] the bulk of paraffin is used in mixing with diesel by some businesspeople. So, it’s very important that whatever form of support that government comes up with is targeted to the beneficiaries,” he said.
Stable supply
Ahead of the fuel price increase last week, there were reports of fuel shortages at some service stations.
“What we have seen…is something that we have never seen before. Particularly the magnitude of the fuel price increase. So what likely happened is that some of the commercial customers were trying to buy in bulk in anticipation of the high fuel prices. So, they were placing additional orders on top of the orders they had with the suppliers.
“But also, there were complaints that some service stations were running out of fuel and people were thinking that they were hoarding fuel until the new price kicks in. That was a big challenge for us.
“However, we just came from the long weekend and from the reports that we are getting, there was not a lot of reports from provinces that they were running out of fuel,” he said.
Maake reiterated assurances that supply to South Africa remains stable despite reports to the contrary.
“In as far as supply is concerned, we are safe and secure. In the meetings that we are having with the oil companies…they have indicated the number of vessels that they have secured and confirmed that will be coming to the country even up to the end of May. And, from time to time, when the vessels come then they will place additional orders.
“We have daily meetings with the oil companies and people who are responsible for supply in the oil companies. That’s where they give us assurance in terms of the supply that they are bringing to the country.
“The Director-General [Jacob Mbele] himself has got meetings with the CEOs of oil companies once a week. So that’s the assurance to say that the department, together with the industry, are taking the issue of supply seriously and monitoring it regularly,” he said.