Politics of the fuel price

For policy certainty, it is hoped government’s recent interference was a once-off.

Acrucial element of President Cyril Ramaphosa’s “new dawn” is to improve policy certainty to create an environment conducive to investment. However, it seems policy certainty was sacrificed when government absorbed a fairly moderate fuel price hike.

On September 3, energy minister Jeff Radebe announced there would be a 4.9c per litre increase in the retail margin for petrol in September. Government protected the consumer against a 30c/l increase in a “once-off temporary intervention”.

Last week, the SA Petroleum Industry Association (Sapia) shed some light on the mechanism used and its consequences.

According to Sapia’s Avhapfani Tshifularo, government did consult oil producers before announcing the decision. Although Sapia accepted the move, it’s clearly uncomfortable with it.

One must first understand the Slate Levy Trust Fund. This is a self-adjusting mechanism aimed at mitigating the underrecovery of fuel prices due to the difference between the average price oil companies pay and the revenue from the retail market where government sets the price.

The international market price fluctuates daily and it would be impossible to exactly match the average price industry pays during a specific period to the retail price charged in the corresponding period.

To mitigate the risk, companies can claim from the fund. However there’s a month’s lag and they aren’t paid interest.

When the balance of the fund dips to a negative R250 million, a levy is added to the fuel price.

If the balance is too low to refund the oil companies, the claims remain live until the fund is replenished.

In August, the ministry convinced Sapia there was money to refund oil companies. This amounted to over R500 million.

The minister deviated from the rules and forced an underrecovery when it shouldn’t have occurred. While the companies will be refunded, it has impacted their cash flow and introduced additional risk: political interference.

Radebe said this was a once-off, but the way the oil price is going and in the buildup to the election, he’ll be faced with much more compelling conditions to intervene in coming months.