How the petrol price is calculated

In the last 10 years, South African petrol prices have increased, on average, by 11% per annum. This rate is unsustainable, especially given its disproportionate impact on the poor.

A litre of petrol cost R 3.77 in Gauteng in April 2001. Today, a litre of petrol in Gauteng costs a whopping R 11.94. If the trend continues, petrol would cost over R 20 per litre in about five years.

The Democratic Alliance welcomes the Department of Energy’s call for a review of the fuel pricing mechanism used by the Central Energy Fund (CEF).

Will South Africans be able to fill up their petrol tanks in future?

Government needs to take bold steps to bring down the fuel price, which is damaging South Africa’s prospects for growth and job creation.

The pricing formula of fuel must be amended to cushion South Africans from dramatic price increases.

The truth is that there is a great deal that government can do to reduce the petrol price. The dramatic 71 c per litre increase could have been much lower if government used a more sensitive formula to determine the price.

The petrol price formula currently works as follows:

The basic fuel price (BFP) + a number of additional margins, including government taxes and levies = Petrol Pump Price.

The formula makes sense in principle, but the DA proposes that each component be differently calibrated:

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Firstly, the BFP formula needs to be reviewed to be less responsive to short-term fluctuations in the international oil price and the R/$ exchange rate. These fluctuations are often driven by market sentiment rather than by supply and demand fundamentals in the global oil market.

Currently, the Central Energy Fund, bases the BFP largely on the international price of oil and the value of the rand. As South Africa imports the vast majority of its oil, these dynamics are inescapable for the most part. The formula we use to determine petrol prices should be based on the long-term fundamentals in the global oil market.

Secondly, the petrol price formula should be reviewed. This should involve the radical reduction of government taxes and levies, currently consisting of customs and excise duties, a fuel levy, an equalisation fund levy and a road accident fund levy.

Petrol is a necessity for daily living. Government should not exploit this for the sake of unscrupulous tax gains. In the long run, higher taxes on petrol discourage the investment that is necessary to grow the economy and ultimately deliver tax revenue.

Petrol price increases affect all South Africans and will weigh down the economy. It means that people will have less disposable income and therefore less money with which to purchase goods and services.

This will in turn make businesses less profitable, meaning fewer people will be employed – leaving even less disposable income. It is not difficult to see how the current trajectory of fuel prices could have a crippling ripple effect on the economy.

Government should do all it can to cushion the blow in these cases. When the health of our economy is being threatened, no stone should be left unturned to protect the standard of living of the average South African.

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