Freedom Front Plus
Freedom Front Plus

Record high fuel prices: Can be lowered if government has the will

The expected increase in fuel prices of about R1,20 per litre, depending on the specific category, can indeed be curbed – if the political will exists.

The fuel price in South Africa consists of three elements: The basic fuel price (approximately 40%), distribution costs (approximately 20%) and levies or taxes (the other 40%). It may seem that the government can only adjust the tax component, but in reality, all three elements are influenced by the government to a greater or lesser degree.

The basic fuel price is a hypothetical price that is calculated based on the assumption that all fuel is imported in its final form. It is determined almost exclusively by the Rand/Dollar exchange rate and the price of crude oil. The actual production cost of fuel in South Africa, therefore, has no effect on the price.

Distribution costs have been de-regulated with diesel, but in the case of petrol, there are fixed profit margins for each link in the chain.

Although the government expressed the intention to de-regulate the provision chain so that it would reflect the true, lower cost in a white paper in 2008, quite the opposite happened. At present, profit margins are higher than twenty years ago. An important factor that affected the failure to de-regulate is the wider interests that were created through Black Economic Empowerment (BEE).

One of the proposals of 2008 that was never implemented is that, like electricity, fuel prices must be determined by NERSA. There is less political pressure on this independent regulator than on the Department of Mineral Resources and Energy, which currently shoulders the responsibility.

The tax component is entirely under the government's control. The Road Accident Fund (RAF), which frequently makes the headlines for all the wrong reasons, is one of the biggest beneficiaries.

For already overwhelmed consumers, whose cost of living is affected by the fuel price in every way, it is good news that a calculation that is truer to reality could actually lead to a decrease of 90c per litre in the fuel price.

It is even better news that the Minister of Finance has the power to lower the tax component of the fuel price in his budget. The bad news, however, is that it is highly unlikely that any of these steps will be taken.

Political pressure from consumers is simply not as great as the pressure from interest groups that benefit from high fuel prices. The FF Plus will still attempt to change this uneconomical state of affairs for the better, though.



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