Scarce and overpriced eggs. High interest rates. The list of inflationary pressures that South Africans currently face is a long one, and fuel is surely near the top of that list.
Following three months of substantial increases, the price of petrol is nearing the brief record highs of July 2022, currently costing just under R25 at the coast and between R25.22 and R25.69 in the inland areas.
But how did fuel become so expensive?
The recent spate of increases is partly due to rand weakness, but the biggest factor is rising international oil prices. This comes as a result of OPEC+ members agreeing to cut production to keep prices inflated, despite the financial strain it puts on ordinary consumers across the globe. However, oil prices have fallen below $85 in recent days so relief could be on the horizon.
There are numerous other factors that influence local fuel prices, including a substantial general fuel levy and the many other costs associated with getting that black gold from the harbour to your fuel tank. None of this is new, of course, but these factors do make the pinch feel all that much harder when oil prices are high.
South Africa’s fuel price calculation
On its website, the Department of Mineral Resources and Energy (DMRE) provides a breakdown of the cost of 95 Unleaded in Gauteng, for which you currently pay R25.69 at the pumps.
Now take a deep breath, because that exact litre of 95 costs just R14.95 when it lands in the harbour.
But on its journey to the fuel station, that litre is hit with a General Fuel Levy tax of R3.95 as well as a Road Accident Fund levy of R2.18 and let’s not forget the customs and excise duty of four cents.
Then we have the actual costs associated with getting it to its destination, including initial transportation costs of 75.7 cents, a wholesale margin of 56.6 cents, secondary storage cost of 28.8 cents, secondary distribution of 16.9 cents and finally the retail margin of just under R2.47. You’ll also have to add to that the 30.7 cent Slate Levy which came into effect this month to compensate for daily oil price fluctuations during the previous month’s calculation period.
The Automobile Association has previously called for a comprehensive analysis of the components of this fuel price calculation, to determine whether they are still valid and relevant in the current context.
This call was recently echoed by two senior economists at the South African Reserve Bank, who also called for a review of the retail margin and transport cost calculation and proposed the move to a “maximum”, rather than “regulated”, fuel price.
The economists’ report furthermore called for the updating of “several outdated elements of the basic fuel price calculation”.
The biggest bone of contention
The elephant in the room, as far as consumers are concerned, is the R3.95 General Fuel Levy (GFL) that goes directly into the country’s general fiscus without any demonstrable benefit to motorists.
However, removing this levy would not be as simple as it sounds, AA spokesperson Layton Beard told IOL, as the government would almost certainly raise taxes in other areas to account for the fiscal shortfall.
The GFL accounts for around 6% of the country’s total tax revenue, according to Statistics South Africa, and in 2020 it raked in around R80 million.
While reducing this tax would certainly be the morally correct thing to do, in our opinion, given the current state of finances it’s unlikely that the government would consider this.
“Removing the General Fuel Levy is not going to be the silver bullet people are asking for,” Beard said. “Our view has always been that South Africans would be more comfortable with a R4 fuel levy if they believed they were benefiting from that, with better road infrastructure and improved traffic law enforcement.”
Burden of the Road Accident Fund
Which in a roundabout way, brings us to another major element in the fuel price calculation: the Road Accident Fund levy of R2.18 per litre. The AA has also called for urgent intervention in the embattled institution as well as a review of the RAF levy.
Although perhaps easier said than done, improving road safety would definitely ease the strain on this fund.
Beard reiterated that road safety was a national crisis that required urgent attention.
According to the most recent RTMC calculations from 2015, road accidents cost the country around R143 billion per year, which would probably be closer to R200 billion if we adjust the figure to 2023.
It is certain that more resources are needed. In 2019 the South African Traffic Law Enforcement Review Committee urged the government to double the number of traffic officers on our roads in order to make a meaningful impact on road safety.
And there is one more radical suggestion. Creating a more stable and business-friendly environment in South Africa would benefit the rand, which also has a significant impact on fuel prices.