Picture: Karen Sandison/African News Agency(ANA)
Picture: Karen Sandison/African News Agency(ANA)

Regulating fuel prices a complex process, report shows

By Tarryn-Leigh Solomons Time of article published Apr 29, 2021

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Cape Town - The portfolio committee on mineral resources and energy has looked at actions and interventions needed following presentations made relating to the Basic Fuel Price (BFP) and the state of refining in the country.

The Department of Minerals and Energy has stated that the government cannot deregulate the fuel price because the country’s market is not ready for deregulation. According to the department's director of fuel pricing mechanism, Robert Maake, various factors need to be considered before the market will be ready for such a deregulation.

He also said fuel prices are lower in countries like Botswana and Lesotho because they buy from South Africa at a BFP which doesn’t include the local factors.

On the same day, the AA proposed five key recommendations to the committee on measures to mitigate rising fuel costs. The association’s chief executive, Willem Groenewald, said that providing cheaper fuels to South Africans will not happen with the flick of switch but will require a multi-faceted, multi-departmental approach with the involvement of the private sector.

Among the recommendations include an investigation of the current pricing model, recalculation and audit of existing elements within the pricing model, better management and governance of the Road Accident Fund, better allocation and utilisation of funds from the General Fuel Levy (GFL) and investment in alternatives to the country’s current reliance on fuel.

The committee yesterday indicated the interventions and action required.

On the issue of determining fuel prices, the action would be to conduct further public engagements or consultations on other alternatives, read the committee’s report.

It said the department should also urgently engage with freight companies to resolve the removal of the 15% premium charge on freight.

Intervention was required on the de-linking of the Road Accident Fund (RAF) from the BFP. On the issue of regulation and deregulation of fuel products, the report said the intervention required a white paper on energy encouraging deregulation. “Transformation of the market is needed as wholesalers compete on price. The playing field has to be levelled first.”

Another intervention needed, said the report, is for the department to look into increasing the procurement of oil from African countries who supply oil. “The committee needs to find ways of addressing these intra-trade initiatives with the Pan African Parliament to find common ground.

“Alternatives must be considered on the domestic taxation aspect of BFP. It was emphasised that high fuel prices have a socio-economic impact that should not be ignored.”

Regarding refineries, intervention on the possible closure of a number of them was required. “The action for this is ensuring sustainable supply and refining of fuel products for the SA market.”

More interventions to be looked at included ensuring maximum stocking of fuel products when costs were at their lowest in order to enhance reserves and the closure of the Engen Refinery in Durban. Shell and BP are in the process of evaluating a number of options including obtaining an owner-operator for the refining asset.

The report said action required, respectively, included ensuring sufficient strategic fuel stock, ensuring smooth conversion of the refinery to a terminal and ensuring minimal job losses and continually monitoring the process of Shell and BP.

On the issue of importation versus locally produced fuel products, the report said it was necessary to ensure consumers were not adversely impacted.

In addressing the developments in the world of mineral resources, the report said the establishment of a research institute for energy resources should be considered and that the country must have a sufficient specialised skills base. “(There must be) involvement of higher education institutions and other government research SOE and Sector Education Training Authorities.”

An intervention into the amendment to legislation is also to be considered. The report said that if legislation might impede or slow the transformation process, it needed to be amended, for example by way of a Petroleum Products Amendment.

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Political Bureau

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