Petrol Price Guide
||24 June 2012 07:00
Chantal Rutter Dros
|Show: ||Carte Blanche|
Since January this year the price of 95 Octane petrol has skyrocketed from R10.61 a litre to May's record high of R12.22 followed by a slight drop in June to R11.67.
Victor Ngcizele (Motorist): "The current petrol price is killing us."
Tom Pentz (Motorist): "We're just scraping through."
Chantal Rutter Dros (Carte Blanche presenter): "For consumers having to pay a hundred rand more than a year ago to fill a 50-litre tank of petrol is a bitter pill to swallow."
Tom: "We used to spend about R1 500 a month just on petrol... it's now going to R3... 4 000."
Unlike most consumers, Economist Dawie Roodt understands why he's paying over a thousand rand to fill his tank.
Dawie Roodt (Economist): "High international oil prices, a weak currency and the Minister of Finance announced quite a substantial increase on the fuel levy and Road Accident Fund in his budget in February. So this was pretty much a perfect storm."
Prof Phil Lloyd (Energy expert): "The big problem with the petrol price is that it's inelastic. People need it - and because people need it, people will pay what the asking price is."
Energy expert Professor Phil Lloyd says consumers bear the brunt of maladministration.
Prof Lloyd: "Government has had to fund the Road Accident Fund, which has been having terrible problems."
The Fund incurred a net loss of R2.5-billion in the last financial year and is R42.3-billion in the red.
Chantal: "Ten years ago it would have cost you about R200 to fill the tank of this small vehicle, at around R4.19 a litre. Today it costs about three times that at just under R600 to fill the tank."
What drives the petrol price? The international drivers of petrol price volatility are the rand/dollar exchange rate and crude oil price. In the last decade, general inflation increased 62 percent; the petrol price has almost tripled in comparison at 165 percent.
Victor: "When the petrol price is going up, also the food is going up. Everything... the clothes is going up."
Georgie Colling relies 100 percent on her vehicle to keep her cleaning business going.
Georgie Colling: "Then when petrol came with three petrol increases, people started saying our disposable cash flow is just not there anymore."
Georgie's suppliers also put up their prices.
Georgie: "What with my price increase, the petrol price increase, and my suppliers' prices increasing - it takes my business to a completely different level."
A change of strategy is what's keeping Georgie afloat.
Georgie: "You have just got to reinvent yourself again; which means I have to talk to more people, which means I have got to be more mobile."
Chantal: "The one area in which government can effect change is on the levies and taxes imposed on every litre of petrol."
The Department of Energy's Muzi Mkhize understands consumers are feeling the pinch.
Chantal: "Are you aware of the impact that these fuel increases have had on the consumer?"
Muzi Mkhize (Department of Energy): "Very much so, as it affects myself. Yesterday I had to fill up and it wasn't nice when I looked at what I had to pay."
Victor: "The government says it's trying, but we see everything is going up."
Are the levies and taxes we pay too high? In April the Fuel levy went up 20 cents a litre to R1.97 and the Road Accident Fund levy up 8c to 88c. We now pay taxes of about 25 percent, or R3.13, on every litre.
Dawie: "If I was the minister of finance I would actually increase the fuel levy by even more. It's a so-called indirect tax; it's a fairly cheap tax to administer."
Government expects to raise total taxes of R826.4-billion this year. 5% of that, or R43-billion, will come from the fuel levy alone, which isn't a ring-fenced tax. Sounds like a lot, but more than that - R45.9-billion - will be spent on road infrastructure. We're playing catch up as we're currently about R150-billion behind on road maintenance.
Dawie: "Whether we like this or not, if the Minister of Finance reduces the fuel levy to support motorists in South Africa, then he must increase another tax or he must spend less on something else."
How is the fuel price calculated? With a litre of petrol at R11.67, R3.13 goes to taxes and levies and R1.94 goes to transport and margins paid on petrol. These are the domestic costs you pay. But there are also international costs of R6.60 calculated according to the Basic Fuel Price formula which works out the cost of importing one litre of refined petrol to South Africa.
Prof Lloyd: "You can buy much cheaper than the formula... That we are still incurring as it were 'shipping charges' from Singapore and from the Mediterranean, but we don't bring any petrol that way."
For now government still uses these sources of crude oil as benchmarks. Dawie feels the formula's basic premise is correct.
Dawie: "If we tweak the formula a little bit more, it may reveal that the formula actually underestimates the actual cost of petrol and there might be an increase required for the petrol price."
Government is currently reviewing the Basic Fuel Price formula. They are also reviewing the way in which they control the entire fuel price value chain. Should the industry be so tightly regulated?
Prof Lloyd: "There should be some differential in the petrol price and the people who really have huge volumes need to have their profits cut back quite a lot. Now if there were open competition, that would have been resolved."
For government there are still valid reasons to regulate the industry, including transformation in the sector.
Chantal [filling tank at petrol station]: "What I am doing right now is illegal in South Africa. We currently have around 70 000 petrol attendants. Protecting their jobs is one of government's most important reasons for regulating the fuel price."
Deregulation is not a guarantee of lower prices, says government.
Muzi: "What has been observed in other jurisdictions is that you do in fact get the first decline and then after that it shoots up. We are in a net importing position and, with that, you get no drive to have local production. You've got runaway prices, and you can't step in as government to say, 'This is not helping the consumer.'"
Renay Kathawaroo (Motorist): "I was driving a Mercedes-Benz and I downscaled to drive an automatic Polo, but yet the price is still exorbitant."
But, comparatively, how expensive is our petrol? The Norwegians pay around R22, the Brits around R18 and the Italians R20 per litre - and almost half of it goes to taxes. The Australians pay prices similar to ours and the Americans around R8 a litre.
Prof Lloyd: "A) They have public transport and B) When you look at what we call purchasing power parity, then our petrol gets jolly expensive because we don't earn as much as the Brits or the Norwegians by any manner of means."
While consumers wait in the hope of improved public transport, is there light at the end of the tunnel in the short-term?
Dawie: "This is not the last time we will see the oil price go to $110 or $150, or falling down back to $60."
What can we expect to happen this year? Dawie expects tension to decrease in international financial markets and the Middle East, which will see the rand strengthen and [the] crude oil price drop further.
Dawie: "My guesstimate will be that we could see the oil price at around about $100 or $80 or $90 by the end of this year. I will not be surprised if we see the rand at between R7.50 or even seven to US dollar to the end of this year."
Chantal: "And by how much do you think it will come down?"
Dawie: "Put everything together... it's possible in a best case scenario to see the petrol price below R10, or maybe even substantially below R10 by the end of this year."
IMPORTANT DISCLAIMER:While every attempt has been made to ensure this transcript or summary is accurate, Carte Blanche or its agents cannot be held liable for any claims arising out of inaccuracies caused by human error or electronic fault. This transcript was typed from a transcription recording unit and not from an original script, so due to the possibility of mishearing and the difficulty, in some cases, of identifying individual speakers, errors cannot be ruled out.