Introduction
The underlying principles for the basis of determination of the Basic Fuels
Price (BFP) are to represent the realistic, market-related costs of importing a
substantial portion of South Africa's liquid fuels requirements, and it is
therefore deemed that such supplies are sourced from overseas refining centres
capable of meeting South Africa's requirements in terms of both product quality
and sustained supply considerations.
The petrol price in South Africa is therefore directly linked to the price of
petrol quoted in US dollars at refined petroleum export orientated refining
centres in the Mediterranean area, the Arab Gulf and Singapore. This means that
the domestic prices of fuels are influenced by (a) international crude oil
prices, (b) international supply and demand balances for petroleum products and
(c) the Rand/US Dollar exchange rate.
The import parity (BFP) principle is an elegant, arms-length method of basic
fuels price determination to ensure that local refineries compete with their
international counterparts. This promotes cost efficiency and astute crude
acquisition strategies to ensure survival in a volatile and competitive
international environment, thus eliminating domestic inflationary pressures.
International influence on the domestic prices of fuel
The elements of the Basic Fuels Price are described hereunder:
- Free-on Board (FOB) values: These are petroleum product prices
quoted on a daily basis by export orientated refining centres situated in
the Mediterranean area, the Arab Gulf and Singapore.
- Freight: This is the cost to transport refined petroleum products
from these export refining centres to South African ports. The freight rates
used in the BFP calculation are based on freight rates published by London
Tanker Brokers Panel on 1 January each year. These freight rates are
adjusted on a monthly basis in line with the so-called Average Freight Rate
Assessment (AFRA) which is a function of risks and supply and demand of
ships transporting refined petroleum products internationally.
- Demurrage: Petroleum products are loaded into ships at ports in the
Mediterranean area, Arab Gulf and Singapore and these products are
discharged at South African ports. Demurrage rates are published by the
World Scale Association Limited. In calculating the demurrage cost, the
total demurrage time is limited to 3 days.
- Insurance: An element of 0.15 percent of the FOB-value and freight
to cover insurance as well as other costs such as letters of credit,
surveyors' and agents' fees and laboratory costs.
- Ocean loss: A loss allowance factor of 0.3 percent to be calculated
on the sum of the FOB, Freight and Insurance values for products is
applicable to provide for typical uninsurable losses during transportation
of fuels.
- Cargo dues (Wharfage): The South African harbour facilities are
utilised to off-load petroleum products from ships into on-shore storage
facilities. The cost to utilise these harbour facilities is based on the
tariff set by the National Ports Authority of South Africa.
- Coastal Storage: This is to recover the cost of providing storage
and handling facilities at coastal terminals. In 2002, the typical
international storage rate was assessed as USD 3 per ton or 2.5 SA cents per
litre per month. The BFP only makes provision for 25 days and the initial
value when BFP was implemented amounted to 2.083 c/l. This element is
adjusted on an annual basis by the increase in the Producer Price Index
(PPI).
- Stock Financing: Stock financing cost is based on (i) the landed
cost values of refined petroleum products, (ii) 25 days of stockholding and
(iii) the ruling prime interest rate less 2 percent.
The BFP, quoted in USD/barrel or USD/ton is converted to US cents/litre by
applying the international conversion rates (for example, barrels to tons, tons
to gallons and gallons to litres) and is then converted to South African
cents/litre by applying the applicable Rand/US Dollar exchange rate.
To arrive at the final petrol pump price in the different fuel pricing
zones (magisterial district zones), domestic costs, imposts, levies and margins
are added to the Basic Fuel Price (BFP).
Domestic influences on the South African petrol price
Inland transport costs
Refined petroleum products are transported by road, rail, pipeline and by a
combination thereof from coastal refineries to inland depots.
Delivery costs
This element compensates marketers for actual storage and handling costs of
refined petroleum products at depots and for the distribution costs thereof from
the depot to the end user
Wholesale margin
The margin is a fixed maximum monetary margin. The formula used to determine the
wholesale margin is based on a set of Guidelines, namely the
Marketing-of-Petroleum- Activities Return. The level of the margin is calculated
on an industry average basis and is aimed at granting these marketers a
benchmark return of 15 percent on depreciated book values of assets, with
allowance for additional depreciation, but before tax and payment of interest.
Should the industry aggregated margin be between 10 and 20 percent, no
adjustment is made to the margin, if it is below 10 percent or above 20 percent,
the margin is adjusted to a level of 15 percent.
Retail profit-margin
The retail profit margin is fixed by the DME and is determined on the basis of
the actual costs incurred by the service station operator in selling petrol. In
this cost structure, account is taken of all proportionate driveway related
costs such as rental, interest, labour, overheads and entrepreneurial
compensation.
Equalisation Fund levy
The Equalisation fund levy is normally a fixed monetary levy, determined by the
Minister of Minerals and Energy in concurrence with the
Minister
of Finance. The levy income is mainly utilised to equalise fuel prices.
The levy is currently zero.
Fuel tax
A fuel tax levied on petrol and diesel. The magnitude of this levy is determined
by the Minister of Finance.
Customs and Excise levy
A levy collected in terms of an agreement by the Southern African Customs Union.
Road Accidents Fund levy
A Road Accidents Fund levy is applicable on petrol and diesel. The magnitude of
this levy is determined by the Minister of Finance. The income generated from
this levy is utilised to compensate third party victims of motor vehicle
accidents.
Slate levy
The Basic Fuels Price (BFP) of petrol, diesel and illuminating paraffin is
calculated on a daily basis. This daily calculated BFP is either higher or lower
than the BFP reflected in the fuel price structures at that time. If the daily
BFP is higher than the BFP in the fuel prices, a unit under recovery is realised
on that day. When the BFP is lower than the BFP in the price structures, an over
recovery is realised on that day. An under recovery means that fuel consumers
are paying too little for product on that day, whilst in an over recovery
situation, consumer are paying too much for product on that day. These
calculations are done for each day in the fuel price review period and an
average for the fuel price review period is calculated. This monthly unit
over/under recovery is multiplied by the volumes sold locally in that month and
the cumulative over/under recovery is recorded on a Cumulative over/under
recovery account (referred to as the "Slate Account"). A Slate levy is
applicable on fuels to finance the balance in the Slate account when the Slate
is in a negative balance.
Demand Side Management Levy on 95 unleaded petrol
A DMSL is applicable on 95 unleaded petrol consumed in the inland area. This
levy was implemented into the price structure of 95 unleaded petrol in January
2006 when 95 unleaded petrol was introduced into the inland market for the first
time. Most vehicles in the inland market do not require to run on 95 unleaded
petrol and the unnecessary use thereof in the inland area would result in
"octane waste" with negative economic consequences. A DSML was
introduced to curtail the demand thereof in the inland area.
IP tracer dye levy
To curtail the unlawful mixing of diesel and illuminating paraffin, an
illuminating paraffin tracer dye is injected into illuminating paraffin. An
illuminating paraffin tracer dye levy was introduced into the price structures
of diesel to finance expenses related thereto.
Petroleum pipelines levy
The annual budget of the Petroleum Pipelines Regulator is approved by the
Ministers
of Minerals and Energy and of
Finance.
In terms of the
Petroleum Pipelines Levies Act, 2004
(Act No 28 of 2004), a levy of 0.19 c/l was implemented into the price
structures of petrol and diesel on 7 March 2007.
