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FUEL PRICE STRUCTURE

Overview

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
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 influence on the prices of fuel
Inland Transport Costs
  Refined petroleum products are transported by road, rail, pipeline and by a combination thereof from coastal refineries to inland depots.
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 DoE 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
  The Equalisation fund levy is normally a fixed monetary levy, determined by the Minister of 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
  A levy collected in terms of an agreement by the Southern African Customs Union.
Road Accidents Fund
  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
  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 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 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.