The Department of Energy is pushing ahead with a proposal to set maximum retail prices for 93 octane grades of petrol. File Photo: IOL

PRETORIA – The Department of Energy is pushing ahead with a proposal to set maximum retail prices for 93 octane grades of petrol.

The department confirmed on Friday that the October 18 deadline for stakeholders to comment on the proposal had been extended to January 31 next year. This coincides with the deadline for public comment on the discussion document on the basic fuel price (BFP) structure for petrol, diesel and illuminating paraffin that was published in the Government Gazette on November 23.

The department sent “stakeholder consultation” letters to various entities about its proposal to set maximum retail prices for 93 octane grades of petrol. Business Report is in possession of a letter on this issue signed by Tseliso Maqubela, the deputy director-general for petroleum and petroleum products in the department.

In the letter, Maqubela said that, since the introduction of unleaded petrol (ULP) in January 2006, the market penetration of 95 ULP had increased to 80 percent of the total petrol consumed in the country at the end of August.

He said that, at the same date, 93 lead replacement petrol (LRP) comprised 0.26 percent of consumption and 93 ULP 19.34 percent of total petrol consumption.

“Taking cognisance of the above differentials in market penetration, the department is considering setting and promulgating a maximum price for both 93 octane grades in line with the provisions of the Petroleum Products Act,” he said.

Maqubela said there were several reasons for the proposal, including that it would bring about price competition between retailers, as was the case with diesel, cause consumers who were unnecessarily using 95 ULP and “contributing to octane wastage” to switch back to 93 octane petrol, and reduce imports of 95 ULP, which would make a positive contribution to South Africa’s trade balance.

In addition, Maqubela said higher consumption of 93 octane grades of petrol, specifically 93 ULP, would ease the pressure on local refineries to manufacture and import 95 ULP to satisfy demand for this grade of petrol.

Maqubela said the proposed maximum retail price for 93 octane would be determined “as per existing methodology”, with the only difference that the department “would no longer publish a set price for the 93 octanes in the Government Gazette, but a maximum retail price for each fuel pricing zone only”.

However, publication of the discussion document on the review of the BFP structure for petrol, diesel and illuminating paraffin, which was based on the import-parity pricing formula, was indicative the department was considering amending this methodology. 

It said the total imported products versus the total products manufactured was not factored into the pricing formula to determine prices in South Africa, because the BFP was a deemed pricing mechanism that assumed there were no refineries in South Africa. 

In reality, there were four refineries and two synthetic fuel refineries that produced 80 percent of the petroleum required to meet local demand, with the balance met through importation, it said.

It concluded that the import-parity pricing principle should be maintained for imported petroleum products, but the BFP should be “un-deemed to reflect the actual cost of landing products at South African ports”.