Tuesday, 31 May 2022 07:40

SAPIA warns against changes to petrol price amid calls for review of fuel costs.

By Lehlohonolo Lehana.

The South African Petroleum Industry Association (SAPIA) has warned against making wholesale changes to petrol prices amid growing calls to review how they are calculated in the country.

SAPIA is a trade group representing major petroleum retailers and refiners, including BP, Engen, Shell, Astron Energy and Sasol.

"The overriding rationale of the control of prices and margins should be to ensure that the various stakeholders in the industry earn fair returns, "the group said at a roundtable event ahead of the expected petrol price change on Wednesday (1 June).

"The returns should be sufficient to encourage investment in the industry, while not being such as to represent over-reward. While the system to determine fuel price adjustments is not flawless, it is a fair and transparent process, documented, subject to constant review and auditable."

The association said it supports the Department of Mineral Resources and Energy in using the current pricing mechanisms and will continue to engage and provide input into any review of this pricing system.

The fuel price and its structure has been the topic of public conversation in recent months.

In April 2022, ministers Enoch Godongwana and Gwede Mantashe announced in a joint statement, the short-term relief measures to address fuel price increases. These measures provided immediate relief to consumers impacted by the rising prices of fuel.

The "two-phase approach" included this temporary reduction in the general fuel levy for April and May and was funded by the liquidation of a portion of the strategic crude oil reserves.

The fuel price in South Africa is regulated by the government and fuel price adjustments are effective on the first Wednesday of the month. The calculation of the new price is done by the Central Energy Fund (CEF) on behalf of the Department of Mineral Resources and Energy.

The petrol pump price is composed of a number of price elements which include international and domestic factors. The pump price is built off the Basic Fuel price (BFP) which mimics the costs of the importation of a substantial amount of petroleum products into South African.

From this, various duties, levies and allowable margins are added to reach the final pump price for petrol. Although the diesel retail price is not regulated a wholesale list price (comprising the diesel BFP and various duties and levies) is provided.

The BFP formula which was implemented in 2003, provides a connection to world markets such that South African prices for liquid fuels are not arbitrarily determined but reflect real-world international prices outside local duties, levies and margins.

The BFP determination starts from the use of spot prices quoted on international markets from certain references as follows;

  • For petrol: 50% Mediterranean/50% Singapore.
  • For diesel and paraffin: 50% Mediterranean/50% Arabian Gulf.

The cost of shipping and related costs of importing the products into South Africa are then addedThese are converted to rands to provide the BFP.

There are a number of factors that influence the price of controlled petroleum products including external dollar factors which vary from day to day. The price is also impacted by internal rand factors which are relatively constant but change on an annual basis.

"The external factors move constantly and account for most of the monthly movements in prices and are outside the control of the industry," SAPIA said.

"The monthly pricing system, whereby the controlled prices are changed on the first Wednesday of each month, takes account of movements in these factors. When the various internal factors are adjusted – usually once a year – these movements are also included in the relevant monthly price changes.