ADDING FUEL TO THE FIRE

The reasons behind the steep increase in the cost of fuel in South Africa are due to two main reasons, the cost of fuel that we import and the weakening South African Rand to Dollar exchange rate.

The price of crude oil increased about six months ago, going above the $100 per barrel mark and climbing. Since April the Rand has also been losing ground against the USD, so although the oil price looks like it may stabilise, the exchange rate is getting worse.

The fuel price is comprised of several factors; basic fuel price: the basic fuel price makes up approximately 42% of the total price of fuel. The basic fuel price is made up of the purchase price of fuel (in US dollars) as well as freight costs, insurance, storage, and financing. In South Africa the fuel price is adjusted on the first Wednesday of every month and is determined by two main factors: The Rand/US Dollar exchange rate, and international petroleum prices � Wholesale and retail margins as well

The final contributors to the gross petrol price are those costs associated with transport and storage, custom and excise duties and retail margins for fuel station owners and makes up roughly 22% of the total fuel price. � The GFL: The general fuel levy, which makes up roughly 23% of the total price of fuel. The GFL goes to National Treasury. Government is free to utilise this levy in a manner it deems fit. � RAF Levy: The road accident fund levy, makes up roughly 13% of the fuel price. These funds can only be utilised for road accident claims.

The government has given a discount on the levy to keep prices down but this is only 1%.

But according to the AA there is hope on the horizon, South Africans can expect some relief at the pumps in August based on current unaudited mid-month data from the Central Energy Fund (CEF).

The current numbers are showing 95ULP petrol down by around 90c/l, 93ULP down by around R1.07/l and the wholesale price of diesel decreasing by around 91c/l. Illuminating paraffin is also set for a decrease of about 94c/l.

But remember that this is unaudited data, and may change during the next couple of weeks. The cost of crude is coming down, but the Rand exchange is too, so we aren’t seeing the kind of decreases that we should be.

These fuel price decreases will be further limited due to the return of 75c/l to the General Fuel Levy (GFL). The government has indicated that it will not alter its position on the initial R1.50that was cut from the GFL in April and May, and which was halved to 75c/s for June and July, will end in August. This means the GFL returns to its normal rate of R3.93/l in August.

When all of this is taken into consideration the real fuel price cut will be minimal, around 15c – 30c per litre.

The costs need to be absorbed by the consumer at the end of the day and this is posing a bit of a dilemma for many. Not just the cost of fuel in their day-to-day lives but the additional cost of fuel is relayed through the supply chain and affects everything that we purchase. Food, clothes and everyday items are set to see an increase.

The solution should lie within government to rethink the fiscal policy and ensure that the Rand strengthens so that we can capitalise on the reducing cost of crude oil. The reality is though that South Africans will again need to be creative in an effort to make ends meet, much as we have done with the lacking electricity supply, we will need to get creative. �