After years of bad or corrupt decisions, SA’s latest oil price shock is too much for a battered nation

Because the South African government has little control over the real reasons for the global oil price hike and volatility, it is entirely possible that its response options could only become narrower for the foreseeable time.

It is clear that the fuel price problems have been growing steadily over a long period. It is now possible that the government, and the country, could be making bad decisions in the short term that will lead to greater disaster in the longer term. While the immediate causes are rooted in events over which the government has no control, it is also obvious that it is not participating in any condemnation of those who created this situation in the first place.

There can be no doubt of the importance of fuel to any economy, and ours is no different. The price of fuel also has a multiplier effect, affecting, among other matters, food prices, which in a country like ours means never being far from a disaster.

Countries such as Sri Lanka, France and many others have seen social discord as fuel prices have an impact on every aspect of daily lives.

In some countries, the price of fuel is so politically sensitive that governments follow economic policies leading to damaging long-term economic consequences. 

It is entirely possible for a country, or a government, to almost sleepwalk into a fuel-fuelled disaster that can lead to widespread violence and even economic collapse.

For the moment, we thankfully appear to be far from that point.

However, there are indications of dangers lurking in our medium-term future.

https://www.dailymaverick.co.za/article/2022-05-29-pretoria-family-racket-allegedly-fleeced-state-using-sassa-pensioners-as-front-for-dodgy-police-service-providers/

When it became apparent that Russia’s invasion of Ukraine would lead to exorbitant international fuel prices, our government responded by temporarily reducing the fuel levy. To make up for the shortfall, officials said they would sell off some strategic fuel fund reserves.

The fund is supposed to keep stocks that would provide around 20 days’ fuel for the country, just in case supply lines faced disruption.

In the end, officials said they were selling about R6-billion of the stocks to make up the shortfall, the money lost through the reduction in the fuel levy. This reveals how much the fuel levy reduction cost the government in only two months.

It appears that this was, at best, a short-term measure as it is obviously unsustainable.

This has been revealed by the announcement of Energy Minister Gwede Mantashe that the full fuel levy will now be reintroduced. 

Combined with an increase in oil prices, the price of one litre of petrol could now go up by R3.50 a litre.

When the decision to reduce the fuel levy was first made it was always foreseeable that international oil prices would not drop and would continue to rise. It was also foreseeable that the full fuel levy would have to be restored.

In the real world, the massive fuel price hike scheduled for this week would have had to happen one day, despite what are supposed to be some small forms of relief which come from tinkering with small parts of the fuel levy. These have not yet been formally introduced, although Finance Minister Enoch Godongwana confirmed to Daily Maverick he was meeting officials on Sunday to discuss them.

All this reveals how important the fuel levy has become to our tax take. This is partly because it is a relatively easy tax to collect because the retail petrol price is set by the government — petrol stations have no choice but to collect the tax and turn it over to the government.

It is also a tax which affects everyone; it is not progressive in that it does not cost a rich person more to buy a litre of petrol than a poor person.

It is also for this reason that fuel is cheaper in countries like Eswatini and Botswana — over time the fuel levy has increased, meaning that the proportion of tax paid has grown dramatically.

As the government has grown to rely on this revenue, so the trade-off required to lower the fuel levy has become more difficult — there is a steeper price to pay for reducing it.

Of course, at the same time, the government’s finances are under greater stress than at any time in the recent past, making all its financial decisions difficult and fraught with danger.

Meanwhile, other longer-term mistakes have led to the fuel price having a greater political impact. 

The high fuel prices would have been easier to survive if the majority had an option to use public transport. Unfortunately, for millions of people that is no longer an option as the railway system in particular has been literally destroyed in many cities and towns across the land.

Meanwhile, the minibus taxi industry will soon have no option but to raise its prices. While those who own cars have a louder voice in our society, it will be at this moment that the problem will really bite. Millions of people already spend around 40% of their incomes just on getting to and from work. Just this increase, coming with warnings that food prices could surge by 15% this year, is guaranteed to make normal life even more unaffordable for the very same millions.

Within all of this is the recent history of the Strategic Fuel Fund.

As revealed by Carol Paton (then at Business Day) in 2015, then energy minister Tina Joemat-Pettersson authorised the sale of fuel in the fund when international oil prices were at their lowest in years. This would have allowed international oil traders to pick up the fuel for a wondrously low price, making the safest of all bets that the price would rise. As events have shown, prices did rise. To add to the immorality of this decision, one of the trading companies which was allowed to buy the stocks was Glencore, a mining giant freshly fined by the US for bribery in several African countries.

https://www.dailymaverick.co.za/article/2022-05-25-glencore-to-pay-1-1bn-fine-after-pleading-guilty-to-graft-and-market-manipulation/

Joemat-Pettersson claimed, ridiculously and laughably, that it was not a sale, but a “stock rotation”. In the end, after it became public, and after certain political changes, the Central Energy Fund itself went to court to have the sale declared null and void.

Joemat-Pettersson was removed as Energy Minister, but was to be paid R2.1-million by the department as a “once-off gratuity”. The money was reportedly going to be taken from a solar power project. Nothing like this has happened before or since. 

The unbreakable Joemat-Pettersson is still a Member of Parliament for the ANC, and Chair of Parliament’s Police Portfolio Committee.

This incident, and the lack of consequences for Joemat-Pettersson, reveal the risk of corruption within the country’s fuel system.

As the fuel price rises and people get angrier at the government about this, it may actually intensify our national debate over what is causing this in the shorter term. The main cause of course is Russia’s invasion of Ukraine, which our government has vehemently failed to condemn.

It is now fair to argue that the government is allowing South Africans to pay a very real price for the invasion perpetrated by its friends and allies. Kinda difficult not to see the problem with that, isn’t it?

As tempers are rising, the government will have to be extremely careful not to make an already difficult situation even worse. One good place to start would be to level with its own people — why the price of oil is so dangerously high worldwide, what can be done to solve the problem and what South Africa will do about it.

This way, the poorest of the poor will pay the highest price for our leadership’s decades of bad decisions. DM

 

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