By Lehlohonolo Lehana.
The Department of Mineral Resources and Energy is considering a number of interventions to address record-high fuel prices – including the possible introduction of fuel limits.
In a presentation to parliament on Tuesday (15 March), the department said high fuel prices are a global issue driven by Russia’s invasion of Ukraine and the subsequent rise in oil prices.
It added that there is a lingering post-pandemic impact being felt in the energy market, as oil suppliers underestimated the rebound of countries following successful vaccination campaigns, and the global economy is now consuming slightly more than what is being produced – leading to upward pressures on the oil price.
The department said that increases of R2 litre should be expected over the coming period, with developing economies such as South Africa likely to see diminished economic growth.
If the situation deteriorates further, the department confirmed that it will consider introducing fuel limits – including restrictions on how many litres each motorist are allowed per visit.
It provided the example of a motorist being limited to 50 litres of fuel per petrol station visit. However, it said that this would largely be a ‘worst-case scenario’ and that the situation will hopefully be avoidable as diplomatic efforts between Russia and Ukraine continue.
Other interventions
The department said it will also push for subsidies for public transport and food production instead of freezing fuel taxes in the country.
It noted that this was the preferable option as there are already existing frameworks around taxi support and easing food costs.
Other proposals include encouraging more employees to work from home and increasing speed limits to further maximise fuel saving.
The department said it is also pushing for broader national changes in a move to become more self-reliant. This includes further energy exploration in the country, investments in local refining and a move to stop the Sapref refinery from shutting down. It will also encourage a shift to biofuels and introduce quotas on diesel exports.
It said that reformulation of the Basic Fuel Price would largely be ineffective as the current record high price was being driven by geopolitical factors outside of the government’s control.
While Treasury decided not to increase fuel levies in its February 2022 budget, it said that this money would still have to come from somewhere. It added that it could not ‘freeze’ the petrol price as it did in 2018, as the slate account does not have the same financial resources as four years ago.
Treasury official proposals
The National Treasury has detailed its official proposals to tackle South Africa’s record-high petrol prices.
In a presentation to parliament on Tuesday (15 March), Treasury said that it had narrowed down its proposals to four options, with a combination of these proposals likely to be the most effective:
- A potential one-off reduction of between 3 cents – 18 cents/litre as part of a recommended Basic Fuel Price review which could be introduced immediately;
- A review of the Regulatory Accounting System (RAS) methodology for petrol could result in a significant decrease of R1.03 cents/litre by 2028. However, this will take significantly longer to implement than other measures and investigations need to take place to fully understand the changes that can be implemented.
- Revising the Road Accident Fund Levy to make up a lower total of the current Basic Fuel Price. Currently, National Treasury regulated levies account for 30% of the total pump price. Treasury said a reduction in the RAF levy should be possible as the Road Accident Fund sees operational changes and improvements over the next three years.
- Consideration should be given to a fuel price cap, although this will also require significant investigations will be required first.
Treasury’s position on a Basic Fuel Price review conflict somewhat with a preceding presentation by the Department of Mineral Resources and Energy.
In its presentation, the department said that it did not think a fuel price review would be as successful as offering transport and food subsidies.
It also proposed other interventions such as encouraging people to work from home – and in a worst-case scenario – limiting the fuel that motorists are given at petrol stations.
It reasoned that the record-high petrol price was largely an international issue, and was being driven by geopolitical factors outside of South Africa’s control, meaning a fuel price review would largely be ineffective.