Government to blame for record-high petrol prices in South Africa

High taxes and levies on fuel, coupled with South Africa’s limited oil refining capacity, have driven steep fuel price increases in recent months.

Reignited hostilities between the United States and Iran have renewed global concerns around oil supply shortages, sending the price of Brent crude oil close to $110 per barrel.

Early forecasts from the Central Energy Fund have predicted price increases of R2.14 per litre for both petrol grades in October, and between R1.71 and R2.04 per litre for diesel.

South Africa is a net importer of refined fuel products because it has no natural oil reserves and insufficient refining capacity to meet its fuel needs.

As such, rising oil prices, which lead to higher refined fuel prices, can significantly increase the amount motorists must pay at the pump.

Codera Analytics economist Jan-Hendrik Pretorius explained that the various fuel taxes and levies set by the government also contribute substantially to higher prices.

“Since the rand values of fuel taxes, levies and margins are set periodically by the government, their proportional contributions to the retail fuel price vary with changes in the basic fuel price,” Pretorius said.

“Taxes and levies represent 30% of the petrol pump price in South Africa, after having dropped to around 20% when the fuel levy was temporarily lowered.”

Without the R3 fuel levy relief granted by the South African government in April and May, petrol and diesel prices would likely have been even higher during those months.

While rising oil prices are seen as a contributing factor in South Africa’s rising fuel costs, KPMG lead economist Frank Blackmore said this is only part of the issue.

Blackmore explained that increases in the prices of the refined fuel products which South Africa imports have far outpaced the rising price of Brent crude oil.

“If you look at inflation in the past, we will blame all this pressure on oil prices,” Blackmore said. “But it’s the refined fuel products that have gone up a lot more.”

“We’ve seen an over 100% increase over time, while crude has only gone up around 30% over the same period. So it’s those refined products that are driving much of the pressure.”

South Africa’s lost refining capacity

South Africa’s dependence on fuel imports means the country is a fuel price taker and highly sensitive to global price fluctuations.

Blackmore explained that this could have been avoided had the South African government invested more in developing the country’s oil refining capabilities.

“We used to have a lot more refineries in South Africa, and we could have bypassed a lot of this cost pressure, which we now obviously can’t do without sufficient refining capacity,” Blackmore said.

“We need to buy those refined fuels from overseas, and therefore we are subject to even larger price swings because of changing fuel prices than we otherwise would have experienced.”

Since 2020, the number of fuel refining facilities in South Africa has halved, resulting in a loss of 260,000 barrels of fuel per day over the past five years.

This has left the country with just two crude oil refineries in operation: Sasol’s NATREF refinery and another owned by Astron Energy.

Sasol also operates a coal-to-liquids (CTL) plant in Secunda, which uses South Africa’s vast natural coal reserves to create synthetic fuels through liquefaction.

This plant can produce between 150,000 and 160,000 barrels per day, while both NATREF and the Astron plant have a daily capacity of 100,000 barrels.

While this is significant, it remains substantially lower than what South Africa produced before three of its fuel-refining facilities shut down.

The SAPREF refinery in Durban used to be the largest refinery in the country, with a daily capacity of 180,000 barrels, before it was closed in 2022.

The Central Energy Fund has said it plans to restart operations at the plant after it purchased the land from its previous owners, Shell and BP.

Until this happens, however, Blackmore said South African motorists will likely have to contend with steeper fuel price increases as oil prices continue to rise.

“Because of the shift in power towards the Iranian side, we’re seeing an ongoing conflict, and that is a concern if this continues,” Blackmore said.

“Prices remain elevated, and there’s a greater chance of what the Reserve Bank looks at as the pass-through from that initial increase in fuel prices to other things, most importantly labour.”