What’s fuelling the pressure?

My money matters | Written by Tsitsi Hatendi-Matika 

03 August 2018

How is petrol price calculated in South Africa?

According to the South African Petroleum Industry Association, the government regulates price of petrol. The prices are recalibrated on the first Wednesday of every month by The Central Energy Fund (CEF) on behalf of the Department of Energy (DOE). There are several factors at play:

  • International and external factors:

The Basic Fuel Price (BFP) is essentially what it costs an importer to buy petrol from a refinery and bring it all the way to South Africa. However, the dollar/rand exchange rate can sometimes create an unexpected spike in the import costs.

  • Local factors internal factors:

Local factors include the cost of shipping and other direct costs such as transportation, service, taxes and levies, wholesale and retail margins. Unlike petrol, diesel prices are not regulated. However, petrol importers try to keep the margins on diesel similar to petrol.

 The handy pie chart below shows you exactly how the price of petrol is divvied up:

How does the exchange rate affect the price?

The total dollar basic price is converted using the dollar/rand exchange rate at 11am South African time. With the rand having weakened by nearly 10%, and the price of oil increasing by just under 12% this year alone, the combination isn’t great news for consumers as this has a knock-on effect on the price of food in your basket.

How much do fuel levies contribute to the overall picture?

In the 2018/19 national budget, Treasury pencilled R77.5bn in revenues from fuel levies alone. The fuel levy contributes close to 6% to the gross tax revenues of the country. The 52 c/litre increase this year, which was a combination of the 22 c/litre increase in the general fuel levy and 30 c/litre in the Road Accident Fund levy, took the total fuel tax from R4.82 to R5.34. While this was 38.4% of the total pump price at the time of the budget, July 2018 fuel taxes are now slightly down at around 34%. The reduced percentage is due to the higher price without taxes, driven by the weaker rand and higher oil prices as mentioned. So without the taxes, you would pay R10.46 versus the current R15.81.

What does this all mean?

June Naamsa (National Association of Automobile Manufacturers SA) vehicle sales show that 11 823 of the 46 678 total vehicles sold in the month was by Toyota, putting them in the lead at 25% of the total market. Given that the demand for Toyota in SA is currently high, the example below uses Toyota to estimate the impact on consumers. At R15.81 per/ litre, a person driving a Yaris would have gone from paying R487.80 in February 2017 to R568.80 in July this year, meaning they would require an extra R81 per tank. A person driving a car with a much bigger tank, such as the Fortuner, would need an extra R202.50 to fill up their tank. The change is 25% since 2016 and 17% since February 2017.

Source: National Treasury, Absa WIMI

When all is said and done, these increases are not only putting pressure on you, the consumer, but will also feed into the inflation numbers. All these factors will be taken into consideration by the South African Reserve Bank (SARB) Monetary Policy Committee (MPC) when deciding the path of interest rates going forward.

Tsitsi Hatendi-Matika is Head: Retail Investment Specialist at Absa’s Wealth and Investment Management unit.

Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.