A year after announcing that it was actively reviewing aspects of how South Africa’s fuel prices are calculated, the Department of Mineral Resources (DMRE) has not yet started the undertaking.
In October 2022, the DMRE confirmed that it was in the process of reviewing how industry margins are calculated within the country’s fuel price structures.
At the time, its words were: “The Department has commenced the process to review how the industry margins are calculated and the details will be communicated to all stakeholders and the public once finished.”
At the start of October 2023, TopAuto contacted the DMRE to find out how far it has progressed with the investigations and if any changes would be made to the country’s fuel price calculations as a result of its findings.
Several weeks later, the DMRE responded with a short statement.
“The Department has not reviewed the industry margins yet due to internal budgetary constraints,” it said.
“We are seeking approval to utilise the Equalisation Fund for the review and awaiting National Treasury’s approval. So, it is expected that the work will commence early next year.”
The Equalisation Fund is a fixed monetary levy, determined by the Minister of Energy in concurrence with the Minister of Finance, which is mainly utilised to equalise fuel prices, as per the DMRE’s website.
According to Lawful Living, the Equalisation Fund finances the purchasing of crude oil or petroleum products through a levy on every litre of petrol, paraffin, aviation fuel, LP gas, and other derivative-type products manufactured, distributed, or sold in the country.
This infers that the DMRE would need to impose an Equalisation Fund levy, perhaps temporarily, if it were to change the way industry margins on fuel are currently calculated, however, this remains subject to confirmation.
Industry margins are not the answer
Since its initial announcement, the DMRE has come under fire from many industry participants for wanting to review industry margins instead of the other fuel price inputs such as taxes and levies.
Industry margins include retail and wholesale margins, as well as storage and distribution costs, and pay for everything from employee salaries to transporting petrol and diesel from the country’s ports to its inland distribution hubs.
In September 2023, the Minister of Mineral Resources and Energy also approved a retail margin increase of 5.0c/l to be effected in the price structures of all octane grades of petrol to accommodate the wage increases of administrative staff, cashiers, and pump attendants at filling stations.
Given the importance of industry margins and their small slice of the fuel price structures (<10%), transport industry stakeholders including the Road Freight Association insist that the DMRE should rather investigate exorbitant taxes and levies – which account for approximately 30% of the fuel calculation – in order for the review to have any noticeable impact on prices at the pumps.
Similarly, the South African Reserve Bank notes that reducing retail margins may come at too high of a “social cost” for South Africa.
Lower margins may force station owners to cut salaries or even jobs, which could have an adverse effect on the economy considering over 70,000 individuals are employed in the fuel station forecourt sector.
Keyword: South African petrol prices under review – 1 year later