The government has greatly benefitted from increased diesel purchases over the past two years while the costs weigh down Eskom and the private sector. 

As South Africa faces near-continuous load-shedding, businesses have had to spend millions monthly on alternative power solutions like diesel-fueled generators.

Eskom has also spent billions on diesel to keep the country’s lights on. The utility has been using its open-cycle gas turbines (OCGTs) to generate additional electricity, which has caused its diesel budget to skyrocket.

These increased diesel costs have, in part, landed in the South African government’s pockets, which has made it reluctant to provide relief for businesses and Eskom.

Business

Many South African businesses and retailers have had to invest in alternative power solutions like generators over the past few years as load-shedding has become more frequent and intense.

In South Africa, a general fuel levy and a Road Accident Fund (RAF) levy are attached to fuel costs. Therefore, the price of the diesel bought by businesses to mitigate the effects of load-shedding also has these levies attached.

However, in 2000, the country implemented a diesel refund system to provide full or partial relief for the general fuel levy and the RAF levy to primary sectors like mining and farming.

As load-shedding has worsened and more businesses’ diesel purchases have increased, there have been calls for this relief to be extended to other sectors. 

During his 2023 Budget Speech, Finance Minister Enoch Godongwana announced that these exemptions would be extended to food manufacturers to limit the impact on food prices – with some caveats.

The caveats include:

• The tax relief is only for 80% of the Road Accident Fund levy, not the whole tax;
• Only diesel used in fixed generators can be refunded – not diesel used in mobile generators;
• The admin process and record-keeping requirements are riddled with red tape and are particularly onerous;
• There are many questions about how the refund will be implemented for businesses that do more than just food manufacturing on the same premises;
• Determining which businesses qualify can be confusing.

This relief also excludes other businesses in the food value chain, like retailers.

Retailer Pick n Pay’s recent results showed it spent over R500 million on diesel in the 2023 financial year. Depending on the load-shedding stage, the retailer spends around R60 million a month on diesel.

Pick n Pay chairman Gareth Ackerman said 37% of the cost of every litre of diesel the retailer has bought has gone to “government coffers” and the RAF.

“This is unconscionable,” he said, adding that requests by the retail industry to be included in the government’s diesel rebate package have fallen on deaf ears.

“No company can absorb these costs indefinitely given the scale of the investment needed to keep the power on and stores open.” 

Eskom 

Eskom has been one of the biggest diesel buyers in recent years. Last year, it spent an estimated R22 billion on diesel – three times more than its budgeted amount.

It is estimated that Eskom will spend between R30 billion and R40 billion on diesel in 2023 to keep its OCGTs running.

Eskom buys its petrol through PetroSA, South Africa’s national oil company, and because Eskom buys diesel in such large quantities, there is a considerable cost attached.

During his time as Eskom CEO, Andre de Ruyter suggested that the utility import diesel directly rather than through PetroSA to save several billion rands.

However, according to energy analyst Chris Yelland, this idea was dismissed by Energy Minister Gwede Mantashe.

According to Yelland, Mantashe said he would not allow Eskom to import diesel directly. The utility would have to buy it through a trader like PetroSA or get a trading license.

“The interesting thing, of course, is that PetroSA is a company in the Central Energy Fund stable that reports to Gwede Mantashe. And without Eskom’s business, PetroSA would not be financially sustainable – it would be in very, very deep financial trouble,” said Yelland.

PetroSA relies on its profit from trading diesel to Eskom, as it is the utility’s biggest supplier.

Yelland said PetroSA is also reluctant to lower the price of the diesel it sells to Eskom, as it relies on the trading revenue to stay afloat.

At certain times, PetroSA was charging Eskom above the pump price of diesel in Cape Town, he said.