Understanding the SA fuel price

How the current fuel price is calculated is often misunderstood and if we can understand how that price is worked out, we will have a better idea of where our hard earned Rands are going.

The fuel price in SA is determined largely by two factors, namely:

BFP (Basic Fuel Price)

GCP (Government Controlled Portions)

BFP (Basic Fuel Price)

The BFP or Basic Fuel Price is the market related cost of importing a large portion of South Africa’s fuel requirement. The fuels are sourced predominantly from the Mediterranean, Arab Gulf and Far East and this therefore means that the petrol price in South Africa is directly linked to the price of petrol, quoted in US dollars, at those refined petroleum export orientated refining centres. This cost is hugely dependent on the current exchange rate.

The BFP, quoted in USD per barrel or USD per ton is converted to US cents/litre by applying the international conversion rates (for example, barrels to tons, tons to gallons and gallons to litres) and is then converted to South African cents/litre by applying the applicable Rand/US Dollar exchange rate.

Outside of the government charges, there are a few other items that contribute. These are:

1. Transport

It’s exactly that, getting the fuel from overseas to our pumps. This involves a lot of transport and the charges that come with it. The following list of charges all make an appearance at some point.

Free On Board (FOB)
Freight
Demurrage
Insurance
Ocean Loss
Cargo Dues
Coastal Storage
Stock Financing

These charges are influenced by international trends and pricing structures that are set at the beginning of each year.

2. Retail

This would be the filling station. They have to make money, so a few of the charges go to them, such as wholesale and retail profit margins.

GCP (Government Controlled Portions)

The GCP (Government Controlled Portions) is what really matters, as those are the costs that government puts in place. The GCP is made up of a host of charges, and taking a look at the breakdown, it’s fascinating to see where the cents go.

3. Inland Levy – This is extra charge for getting petrol inland from the coast.

4. Equalization Fund - The Equalization fund levy is normally a fixed monetary levy, determined by the Minister of Minerals and Energy in concurrence with the Minister of Finance. The levy income is mainly utilised to equalise fuel prices. The levy is currently zero.

5. Fuel Tax - A fuel tax levied on petrol and diesel. The magnitude of this levy is determined by the Minister of Finance.

6. Customs and Excise - A levy collected in terms of an agreement by the Southern African Customs Union.

7. Road Accidents Fund - A Road Accidents Fund levy is applicable on petrol and diesel. The Minister of Finance determines the magnitude of this levy. The income generated from this levy is utilised to compensate third party victims of motor vehicle accidents.

8. Slate Tax - The Basic Fuels Price (BFP) of petrol, diesel and illuminating paraffin is calculated on a daily basis. This daily calculated BFP is either higher or lower than the BFP reflected in the fuel price structures at that time.

If the daily BFP is higher than the BFP in the fuel prices, a unit under recovery is realized on that day. When the BFP is lower than the BFP in the price structures, an over recovery is realized on that day. An under recovery means that fuel consumers are paying too little for product on that day, whilst in an over recovery situation, consumer are paying too much for product on that day.

These calculations are done for each day in the fuel price review period and an average for the fuel price review period is calculated. This monthly unit over/under recovery is multiplied by the volumes sold locally in that month and the cumulative over/under recovery is recorded on a Cumulative over/under recovery account (referred to as the "Slate Account"). A Slate levy is applicable on fuels to finance the balance in the Slate account when the Slate is in a negative balance.

DSML (Demand Side Management Levy) - A DMSL is applicable on 95 unleaded petrol consumed in the inland area. This levy was implemented into the price structure of 95 unleaded petrol in January 2006 when 95 unleaded petrol was introduced into the inland market for the first time. Most vehicles in the inland market do not require 95 unleaded petrol to run and the unnecessary use thereof in the inland area would result in "octane waste" with negative economic consequences. A DSML was introduced to curtail the demand thereof in the inland area.

Petroleum Pipeline Levy - The annual budget of the Petroleum Pipelines Regulator is approved by the Ministers of Energy and Finance. In terms of the Petroleum Pipelines Levies Act, 2004 (Act No 28 of 2004), a levy of 0.19 c/l was implemented into the price structures of petrol and diesel on 7 March 2007.

As you can see from the table below all these charges make for interesting reading.

Hopefully this clears up any confusion and let’s hope that things stay the same or get better so that, on the first Tuesday of next month, we have good news regarding the price of fuel at our local filling station.