SA should get R2 petrol price drop

RELIEF: CONSUMERS SAVE ABOUT R275 FOR DECEMBER

If price of oil stays around $60 for a year, current account deficit would drop, possibly adding 1% to gross domestic product.

Fuel prices could fall by as much as R2.13c a litre, bringing the price down to under R15 per litre for the first time since May and the lowest petrol prices since the fuel tax went up in April.

The reason is that petrol has an average over-recovery of R1.88 so far this month, mainly due to the falling oil price. The strong rand added about 17 cents to the average over-recovery, which should be about 191 cents for petrol and 160 cents for diesel.

The under-recovery hides the fact that the slate levy would no longer be necessary, as South Africa uses close to two billion litres of fuel in a single month.

According to the department of energy, the slate levy finances the cumulative under-recovery of the industry and only applies when the cumulative slate balance exceeds R250 million.

While the slate was owed R2.2 billion by motorists and truckers, the fact that there was such a massive fall in the basic fuel price – that the average over-recovery and the slate levy would average over R2 per litre for petrol and about R1.65 for diesel – means the slate levy shortfall has been wiped clean.

A rough calculation shows two billion litres multiplied by R1.9c (average of petrol and diesel over-recovery and slate levy payments) means the R2.2 billion shortfall had R3.8 billion paid in.

The slate should have a R1.6 billion surplus by today (i.e. oil companies would owe consumers a refund which, by the rules, they don’t have to pay as this is kept in the slate for when prices rise again).

A positive slate balance means there would be no need to continue to charge the 21.92 cents per litre slate levy at present. So, dropping the slate levy means a bigger drop than the average over-recovery thus far would be warranted.

The slate mechanism method, however, looks back two months at the balance of the slate levy as it would have been in October for the December fuel prices. But logic says the huge over-recovery has resulted in wiping out any monies owed. Therefore, the department can afford to drop the slate levy for December. And this would result in the largest drop – R2.13 – in the history of the petrol price, saving the average motorist R275 for December.

This would help consumer and business confidence and boost retail sales by over R2 billion.

Overall, if the oil price stays at around $60 (R819) for a year, the current account deficit would drop by close to R40 billion. That could add 1% to gross domestic product next year, all other prices remaining the same.

If the petrol price stays below R15 per litre for a few months, the inflation rate should drop 0.6% to 0.8% directly and another 0.1% to 0.2% indirectly.

Mike Schüssler is an economist

DoE can afford to drop slate levy for December