The petrol price rises at midnight – but fuel levy relief extended for two months

The government has extended for another two months a relief measure that seeks to protect consumers from steep fuel price increases and a cost-of-living crisis – but also introduced steps to permanently lower retail prices at the pumps and promote competition in the fuel industry.

If the government hadn’t stepped in by extending the relief measure, consumers would have been slapped with petrol price increases of up to R4 per litre from Wednesday, 1 June 2022, which would also feed hikes in food and transport prices. Overall, an already unbearable inflationary environment would have worsened for consumers. 

https://www.dailymaverick.co.za/article/2022-06-01-the-guptaleaks-five-years-later/

But the relief measure hasn’t prevented big increases in the prices of petrol, diesel and illuminating paraffin. According to the Department of Mineral Resources and Energy, which announces adjustments on the first Wednesday of every month, the price of different grades of petrol (93 and 95 unleaded) will rise by R2.43 a litre and R2.33 a litre, respectively. All grades of diesel will increase by between R1.07 and R1.10 a litre. And the price of illuminating paraffin will also go up – by R1.56 a litre.

  Joint Statement-extension of the Temporary Reduction in the General Fuel Levy

The department has blamed a weak rand and rising international oil prices (in US dollar terms), which both feed higher petrol and diesel prices at the pumps. South Africa depends on international markets for the supply of fuel - about 70% to 80% of the country’s local fuel supply comes from imports. 

On Tuesday, 31 May, the department and National Treasury announced in a joint statement that the fuel levy would be reduced in two phases for the next two months. The levy is a form of tax built into the retail price of petrol and diesel at the pumps, and is paid to the government. 

  Media Statement - Fuel Prices for Jun 2022

The first phase will involve the reduction of the levy by R1.50 per litre for the first month, from 1 June 2022 to 6 July 2022. This is a continuation of the relief measure introduced by the government in April and May, when it sought to shield consumers from the economic stress of surging fuel prices. 

The second phase will involve the reduction of the fuel levy by 75 cents per litre from 7 July 2022 to 2 August 2022. 

Both relief measures will be withdrawn from 3 August 2022. By then the government hopes that international oil prices, which have been rising since Russia invaded Ukraine, will have cooled and not influence the price of fuel in South Africa.  

If the government had not intervened with the fuel levy relief measure, the increase in petrol and diesel prices would have been steeper.

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According to the latest data from the Central Energy Fund, petrol prices should have been hiked by R2.43 (95 unleaded) a litre and R2.31 (93) on Wednesday, to compensate for oil prices and a weaker rand. 

Combined with the fuel levy of R1.50, this would hike the price of 95 unleaded petrol by R3.95 from current levels, while 93 unleaded petrol would be R3.83 more expensive. Diesel prices could rise by more than R2.60 a litre. But the reduction of the fuel levy prevented such adjustments. See below:

Temporary relief

The initial relief measure in April, which included reducing the fuel levy, was funded by the government from the sale of the state's strategic oil reserves, which freed up R6-billion. But this time, the fiscus will take a hit as the extension of the measures will result in an estimated R4.5-billion in lost tax revenue for the government.

The government is also looking at long-term measures to reduce the price of petrol. External factors, including the dollar oil price and shipping, influence the price of petrol at the pumps. Another component is local duties and levies that are included to protect the margins and profitability of the local fuel industry.

Treasury said that from 1 June 2022 the Department of Mineral Resources will remove the demand-side management levy of 10 cents per litre that has been applied to the inland price of petrol. 

After a review and consultation by the department, Treasury proposed that the basic fuel price also be reduced by 3 cents per litre in the coming months. 

“Government intends to continue with consultations and proposals to remove the price cap on 93 ULP [Unleaded Petrol], which will partially deregulate the market and introduce more competition to lower pump prices. A review on the Regulatory Accounting System (which includes the retail margin, wholesale margin and secondary storage and distribution margins) will be completed by the [department] to assess the potential to lower margins over the medium term,” Treasury said.

In other words, there might be review in the profits or margins that the retail petrol industry generates. DM/BM

 

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