With the margins on fuel low, and with usage plummeting, the AA believes that many retailers will struggle to stay viable going forward. Photo: IANS
With the margins on fuel low, and with usage plummeting, the AA believes that many retailers will struggle to stay viable going forward. Photo: IANS

Back-to-back records for fuel price drops, but savings will hurt government coffers

By Sizwe Dlamini Time of article published Apr 30, 2020

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CAPE TOWN – With a much-expected fuel price drop for May on the cards the Automobile Association (AA) has warned that a decrease in purchases would result in billions of rand lost by tax collection.

May 2020 will soon join April in setting back-to-back records for monthly fuel price drops, according to the AA, which was commenting on unaudited month-end data released by the Central Energy Fund (CEF).

Petrol is set to drop by around R1.74 a litre in May, with diesel falling by R1.56 and illuminating paraffin a whopping R2.18.

The AA said against the backdrop of the international oil picture even the disastrous performance of the rand versus the dollar over April barely moved the needle on local fuel prices. The domestic currency’s average value against the dollar plunged from R16.45 on 26 March to R18.45 a dollar on April 28, with daily peaks in excess of R19 to the dollar.

“The rand has been pummelled by Covid-19 and the Moody’s downgrade to junk status, and yet we are still able to predict record-territory fuel price drops. This goes to show just how severely the world oil price has collapsed.”

The predicted decreases will result in a fall of R3.84 a litre to 93 unleaded petrol inland since January, and R4 to 95 petrol over the same period. Diesel users are also benefiting with the predicted price now around R3.49 a litre cheaper than it was five months ago.

The petrol price was last below R13 a litre in July 2017. In March 2016 petrol cost R11.74 a litre with the price rising to R12.62 a month later. The figures forecast for May 2020 will bring the price of petrol (and other fuels) to levels last seen five years ago, according to data from the Central Energy Fund (CEF).

“With the massive drop in fuel usage during April revenue from the General Fuel Levy (GFL) – which comprises about 25 percent of every litre of fuel – will also suffer. Considering the annual collection rate of the GFL, the government will have lost between R6 billion and R7bn in revenue through not collecting this tax,” said the AA in a statement.

The Association said the sudden drop in fuel purchases would add further pressure on fuel retailers.

“Many fuel retailers rely on in-store sales to bolster income but that will most certainly also have declined considerably because of the nationwide lockdown. With the margins on fuel low, and with usage plummeting, we believe many retailers will struggle to stay viable going forward,” the AA says.

“It is nearly impossible to predict what might come next in the fuel market,” the AA said. “If the ongoing oversupply forces world oil prices further downwards, we might see at-the-pump fuel costs decline to levels last seen a decade ago or longer. But if demand suddenly increases, the reverse could also happen and prices could spike – although from a lower base.”

The inevitable fuel prices drop, however, comes at the time when harvesting gets into full swing for the summer crop areas while the winter crop planting season begins, according to Paul Makube, a senior agricultural economist at FNB Agri-Business.

“The implications are reduced costs for farmers from planting, harvesting, and distribution bearing in mind that the distribution of agricultural produce is dominated by road transport with over 80 percent of grain is transported by road,” he said.

BUSINESS REPORT

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