Pretoria: The Department of Mineral and Petroleum Resources is conducting a review of the local fuel price mechanism, with the process expected to be finalized by March next year. This was disclosed by the department's Director of Fuel Pricing Mechanism, Robert Maake, during a conversation with SAnews.gov.za in Pretoria on Tuesday.
According to South African Government News Agency, Maake elaborated that the price of fuel in South Africa is determined by a variety of global and domestic factors. These include the fluctuating price of crude oil, the strength of the Rand, and the costs associated with shipping, storage, and government levies and taxes. The pricing formula is bifurcated into two main components: the import component, which accounts for all costs related to importing petroleum products, and the local factor, which is influenced by the oil price and Rand/Dollar exchange rate.
Maake noted the impact of international factors, such as the price of Brent Crude Oil, demurrage rates, and freight costs, which are determined by global markets. He highlighted the current high oil prices driven by the ongoing conflict in the Middle East and the weakening Rand as significant contributors to escalating fuel prices. The department is focusing on reviewing the method used to calculate industry margins within South Africa, covering wholesale and retail margins, as well as secondary storage and distribution costs.
In the short term, the government has announced a temporary reduction of the general fuel levy by R3 to alleviate consumer costs. This measure allows consumers to pay R3 less for petrol and diesel at service stations, providing immediate relief for households and motorists. However, Maake acknowledged the difficulty in predicting long-term government interventions.
On the subject of paraffin pricing, Maake explained the factors leading to a significant increase in wholesale and retail prices for Illuminating Paraffin. He pointed out that paraffin is not subject to taxation, making it ineligible for relief through fuel levy reductions. The price hike is attributed to increased demand for air travel, particularly in Europe, coupled with refinery shutdowns during a harsh winter season, which led to a shortage of jet fuel and consequently raised paraffin prices.
Maake expressed the department's commitment to exploring alternative mechanisms to support paraffin consumers, possibly through direct government assistance for registered indigent users. He also noted the importance of ensuring that any support measures are appropriately targeted, given that paraffin is often mixed with diesel by some businesspeople.
Despite reports of fuel shortages at certain service stations ahead of recent price increases, Maake reassured that South Africa's fuel supply remains stable. He attributed the shortages to commercial customers attempting to purchase in bulk in anticipation of price hikes. Maake emphasized ongoing communication between the department and oil companies, with daily meetings to ensure a secure and steady supply chain, and weekly meetings between the Director-General and CEOs of oil companies to monitor the situation closely.