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HOW IS THE FUEL PRICE CALCULATED IN SOUTH AFRICA?

We are certainly aware when the fuel prices go up from time to time. How do the authorities calculate it? Understandably, we question an increase, especially when it is initiated just before holidays start and then decreased at the end of that period. Let’s find out more.

HOW IS THE BASIC FUEL PRICE (BFP) CALCULATED?

The calculation of the Basic Fuel price (BFP) includes the cost of shipping oil products from export refining centres in Singapore, the Arab Gulf, and the Mediterranean region. 1,2 Demurrage costs involve the loading of oil products into ships at harbours in Singapore, the Arab Gulf and the Mediterranean region. It also includes payment (wharfage) made for harbour infrastructure off-loading oil products at South African ports and placing them into storage units. Storing the oil products at coastal terminals also costs - an average international storage charge rate is USD3 per ton of oil products. Insurance costs are also involved, including laboratory costs.

THE BASIC FUEL PRICE

In April 2017, the BFP was R5.36/litre. In December 2017, the BFP is R6.69/litre for 93 octane petrol, and R6.85/litre for diesel (0.05% sulphur). This is based on the ZAR / USD exchange rate of R14.0964 and crude oil price of USD62.62 per barrel.3

OTHER INTERNATIONAL COSTS

An allowance or ocean loss of oil of 0.3% of oil transported by sea is factored in.2

WHAT COSTS ARE INCURRED IN SOUTH AFRICA?

Other costs included in the fuel price cover costs for transporting fuel from South African harbours to inland regions, customs and excise duties, retail percentages paid to owners of fuel garages, and some storage costs, to mention a few. In April 2017, these costs came to R2.94/litre for inland petrol and R2.55/litre for coastal petrol, 1 and are described further in some more detail.

COST OF TRANSPORTING FUEL INLAND

There are costs incurred transporting the refined oil products from coastal refineries to inland depots by pipeline, rail and road. This impacts the fuel charges too.2

PETROLEUM PIPELINE LEVY

By the way, petroleum refers to the oil that comes out of the earth, and petrol (like diesel) is one of the fractions collected from petroleum at an oil refinery. According to the Petroleum Pipelines Levies Act (2004), a levy of 0.19 c/litre was incorporated into the cost of petrol and diesel in 2007. 2

WHOLESALE MARGIN

A formula is used to calculate the wholesale margin, or a fixed monetary margin. Through this, marketers are provided a return of 15%.2

RETAIL PROFIT MARGIN

This is calculated by the Department of Energy, and includes the costs incurred by the owner of a service station selling fuel. 2

EQUALISATION FUND

A fund levy is usually fixed, and is used to equalise fuel prices. Currently, the levy is zero.2

GENERAL FUEL TAX OR LEVY

Both petrol and diesel fuels are taxed.2 In April 2016, the General Fuel Levy rose by 30 cents from R2.55 to R2.85.1 In April 2017, the tax rose again by the same amount, and stood at R3.15. The National Treasury administers this Levy as a general tax, and not as funds for road infra-structure as is widely believed.

CUSTOMS AND EXCISE LEVY

This levy is based on an agreement by the Southern African Customs Union.2

THE ROAD ACCIDENT FUND (RAF)

The Road Accident Fund (RAF) is used for paying out third party victims injured in road accidents in South Africa. 1,2 As of 5 April 2017, the RAF is funded by R1.63 for every litre of petrol sold.

DEMAND SIDE MANAGEMENT LEVY (DSML)

A certain levy is added to the cost of 95 unleaded petrol used inland, and was implemented to discourage inland demand of this octane petrol as most vehicles do not need to use this high octane rating. 3

A FULL BREAKDOWN OF THE PETROL PRICE

Based on April 2017 fuel price data, 1 litre of 93 unleaded petrol (inland) costs R13.08. This amount is made up of the following: 1

 

  • 15 (24%; Fuel Levy)
  • 63 (12.5%; RAF levy)
  • 94 (22.5%; Associated costs)
  • 36 (41%; Basic Fuel Price)

 

Thus, with any BFP increases, the price of petrol is recalculated. The AA predicts the fuel price in the middle and at the end of every month, before the official results are issued by the Government. 1

It is quite sobering to notice regarding the above figures, that in April 2017 only 41% of the cost of a litre of petrol is made up of the Basic Fuel Price. The rest (59%) of the petrol price is made up of taxes and other costs. Reading this article makes one appreciate the huge effort, organisation and cost involved to get petrol from where it is pumped out of the earth eventually into a car’s tank in South Africa. It is reassuring to know that the cost of petrol and diesel is strictly controlled and regulated.

BUDGETING

Budgeting for an expensive fuel bill every month can be challenging and so can be budgeting for car insurance as well. With PMD you can find affordable car insurance online that has fixed premiums for life.

Sources:

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