Fuel pric­ing struc­ture un­der re­view

For­go­ing levies and du­ties will leave a big hole in the bud­get for trea­sury to fill

Mail & Guardian - - Business - Gemma Ritchie & Lyn­ley Don­nelly

The de­part­ment of en­ergy has started to re­view the fuel pric­ing for­mula, it emerged this week, as South Africans reeled from yet an­other round of record fuel price hikes.

“At the time, it was de­vel­oped rel­e­vant to the pre­vail­ing mar­ket con­di­tions,” says the di­rec­tor of fuel pric­ing in the de­part­ment of en­ergy, Robert Maake. “But the mar­ket dy­nam­ics have changed over time.”

The largest com­po­nent is the ba­sic fuel price, which was orig­i­nally de­signed to pro­tect and en­cour­age lo­cal pro­duc­tion, he says. Since it was de­signed in 2003 and im­ple­mented in 2004, it has not been re­viewed. This and all other el­e­ments of the price at the pump will be in­cluded in the re­view.

Although a time­line for the re­view is not yet clear, the in­ter­nal work on a dis­cus­sion doc­u­ment has been com­pleted and is await­ing ap­proval, says Maake, af­ter which it will be pub­lished for pub­lic com­ment. But the in­ten­tion is to “have this im­ple­mented in the next fi­nan­cial year”.

“A par­al­lel process to con­sider a sus­tain­able mech­a­nism that would be used to smooth the prices will be em­barked upon as well,” he says. The de­part­ment will in­form the pub­lic and all stake­hold­ers about the two pro­cesses once ap­proved in­ter­nally.

As part of this process, the de­part­ment will look at mech­a­nisms in other coun­tries, such as a sta­bil­i­sa­tion fund, a sys­tem in which the dif­fer­ence be­tween the pump price and the fuel price goes into a fund. The de­part­ment is dis­cussing this with ex­perts in the in­ter­na­tional pric­ing mar­kets.

The fuel price went up on Wed­nes­day. It is now 99c to R1 a litre more to buy petrol grades 93 and 95. Diesel in­creased by R1.24 a litre and il­lu­mi­nat­ing paraf­fin by R1.04.

But the diesel price is not reg­u­lated and re­tail­ers can sell it at dis­counted rates. The fig­ures pub­lished monthly are in­dica­tive of the price at whole­sale level, says Maake, adding that the idea that re­tail­ers should be al­lowed to dis­count petrol as well amounts to dereg­u­la­tion.

If the gov­ern­ment was to do this, sev­eral is­sues would have to be con­sid­ered, in­clud­ing whether the “lo­cal pe­tro­leum in­dus­try is ready for dereg­u­la­tion”, he says.

South Africa has only a hand­ful of ma­jor pro­duc­ers and, if prices are dereg­u­lated there is a risk that they will be dropped ini­tially to get rid of small in­de­pen­dent sup­pli­ers. “Once these smaller play­ers are wiped out of the mar­ket, the oli­gop­oly could then col­lude on prices,” he says.

Other con­cerns in­clude the sup­ply of fuel to re­mote and ru­ral ar­eas. Oil com­pa­nies might find it too ex­pen­sive to trans­port fuel to these places and close down ser­vice sta­tions, cre­at­ing sup­ply prob­lems. Al­ter­na­tively “you might find fuel re­tail­ing for R30 [a litre] be­cause it’s the only ser­vice sta­tion [in the re­gion]”, Maake says.

The for­mula to cal­cu­late the ba­sic fuel price in­cludes fac­tors such as ag­gre­gates from fuel re­fin­ing cen­tres in the Mediter­ranean, Sin­ga­pore and the Ara­bian Gulf. The price also re­flects fluc­tu­a­tions in the rand-dol­lar ex­change rate and it is af­fected by geopo­lit­i­cal events around the world.

For in­stance, the United States sanc­tions on Iran since May have de­creased the amount of crude oil avail­able on the mar­ket. Iran, at 3.8-mil­lion bar­rels a day, is a ma­jor oil pro­ducer. These fac­tors are largely out of the con­trol of the South African gov­ern­ment.

The state also adds the trans­port costs of the fuel, such as freight, in­sur­ance, ocean loss, cargo dues, coastal stor­age, stock fi­nanc­ing and de­mur­rage (an ex­pense that is in­curred when the cargo is de­layed at a ter­mi­nal). Most of these costs amount to 0.3% to 0.15% of the freeon-board value, which is the ba­sic fuel price mi­nus car­riage and in­sur­ance costs.

Gov­ern­ment levies such as the fuel levy and the Road Ac­ci­dent Fund levy are an­other key de­ter­mi­nant of the fuel price. These are an­nounced dur­ing the Fe­bru­ary bud­get speech and, un­like the ba­sic fuel price, re­main con­stant through­out the year.

These in­di­rect taxes have in­creased ex­po­nen­tially in re­cent years, as the gov­ern­ment has looked for ways to in­crease its rev­enue.

Ac­cord­ing to the Au­to­mo­bile As­so­ci­a­tion’s spokesper­son, Lay­ton Beard: “When you look at the gen­eral fuel levy at R3.37 a litre (up from R3.15 last year) and the Road Ac­ci­dent Fund at R1.93, which add up to R5.30, there is a need to in­crease the fig­ures but they should in­crease ac­cord­ing to, or be­low, the in­creases in in­fla­tion. But that is not hap­pen­ing.

“If gov­ern­ment doesn’t have the fuel levy, it will have to re­cover the in­come the levy pro­vides from some­where else,” Beard says.

Ac­cord­ing to the South African Pe­tro­leum In­dus­try As­so­ci­a­tion’s web­site, the fuel in­dus­try con­trib­utes R365-bil­lion a year in turnover, earn­ing R72-bil­lion in du­ties and levies and R9.6-bil­lion in cap­i­tal ex­pen­di­ture (money spent ac­quir­ing or main­tain­ing fixed as­sets).

Although po­lit­i­cal par­ties such as the Demo­cratic Al­liance have called for the scrap­ping of these levies, the gov­ern­ment, and in par­tic­u­lar the trea­sury, would have to find other in­come streams. Richard Seleke, the di­rec­tor gen­eral of pub­lic en­ter­prises, is leav­ing the pub­lic ser­vice.

This week, it emerged he had reached a set­tle­ment with the pres­i­dency and the de­part­ment of pub­lic ser­vice and ad­min­is­tra­tion.

But this will not stop the Or­gan-isa­tion Un­do­ing Tax Abuse (Outa) from press­ing ahead with trea­son charges laid against him last year. Us­ing in­for­ma­tion con­tained in the #Gup­taLeaks emails, Outa ac­cused Seleke of be­ing a “go-be­tween who helped the Gup­tas ma­nip­u­late mas­sive pay-offs from Transnet and Eskom deals”.

This in­cludes send­ing con­fi­den­tial in­for­ma­tion about Eskom to the Gup­tas and their lieu­tenants re­gard­ing the pur­chase of the Op­ti­mum Coal mine.

Data breach fine

Bri­tain’s Fi­nan­cial Con­duct Au­thor­ity an­nounced its first-ever fine re­lated to a cy­ber­at­tack this week.

It fined Tesco Bank £16.4-mil­lion for a 2016 breach, call­ing the bank out for fail­ing to “ex­er­cise due skill, care and dili­gence in pro­tect­ing its per­sonal cur­rent ac­count hold­ers against a cy­ber­at­tack”.

It can only be hoped that South Africa takes note of this, given ma­jor breaches here, such as the re­cent at­tack on fi­nan­cial ser­vices firm Lib­erty, in which clients’ per­sonal in­for­ma­tion was hacked, and the in­fa­mous Mas­ter Deeds data breach, which was traced back to prop­erty com­pany Jig­saw Hold­ings.

“If gov­ern­ment doesn’t have the fuel levy, it will have to re­cover the in­come the levy pro­vides from some­where else”

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