Big petrol price changes on the cards

Administered prices imposed by the government contribute to South Africa’s high fuel prices, but a ministerial task team is reviewing the country’s fuel price regime.

This was revealed in a Parliamentary question and answer between the MK’s Visvin Reddy and Mineral and Petroleum Resources Minister Gwede Mantashe.

Reddy’s question centred around the ongoing rise in fuel prices and its significant impact on South Africa’s socio-economic conditions.

He noted that the fuel taxes and levies imposed on fuel prices in South Africa are the highest in Africa.

In light of this, Reddy asked Mantashe whether his department has taken any steps to reduce fuel taxes and levies.

Mantashe explained that the government is “concerned about the contribution of administered prices to the high cost of living”. 

“As an importer of both crude oil and refined products, South Africa is also exposed to the movement of crude oil prices,” he said. 

“The Fuel Levies and Road Accident Fund (RAF) on both diesel and petrol are administered by the Minister of Finance, and this Department implements levies which are voted for in parliament.” 

He added that a Ministerial Task Team to review the fuel pricing regime had been established and said “it must be given a chance to do its work”.

One of the biggest reasons why fuel prices in South Africa are so high is due to administered prices imposed by the government.

A report from the South African Reserve Bank (SARB) found that administered elements of the fuel price have accounted for between 40% and 60% of the final retail petrol price. 

The most important elements of this are the increases to the fuel levy, retail price margins, and substantial increases in the RAF levy. 

The retail margin, RAF levy, and transport cost components increased by 40%, 44% and 49%, respectively, in real terms over the 10 years to November 2022. 

These price increases result from a combination of deliberate policy choices, institutional failures in the case of the RAF, and the specific methodological choices made by the price-setters at the Department of Mineral Resources and Energy. 

The only years the basic fuel price and levies administered on fuel did not increase above inflation were during the Covid-19 pandemic and its associated lockdowns. 

From 2015 onwards, administered levies on the fuel price have exceeded the basic fuel price as a share of the final retail price of petrol. 

The Department of Mineral and Petroleum Resources enforces additional levies, such as the slate levy and petroleum products levy.

This means that R6.40 per litre of petrol goes towards paying taxes and levies – over 25% of the total price for fuel at the pump.

The levies charged on fuel in South Africa have remained unchanged in the past three National Budgets to mitigate the effects of higher inflation caused by rising fuel prices. 

However, the government did increase the carbon tax by 10% on petrol and 22% on diesel in the 2024 Budget. 

This has had a relatively small impact on the price of fuel in South Africa, resulting in a 1 cent per litre increase in petrol and a 3 cents increase in diesel. 

National Treasury said that, including the changes to the carbon tax, this means the total tax paid per litre of petrol will be R6.18 in 2024 and R6.06 per litre of diesel. 

However, President Cyril Ramaphosa said in his Opening of Parliament Address in June this year that the Government of National Unity (GNU) is set to review the petrol price formula, promising lower prices at the pump.

Ramaphosa announced that the fuel price formula will be reviewed to identify where prices can be reduced.

He said one of the key priorities of the GNU is to tackle poverty and the high cost of living.

“An effective, integrated, and comprehensive poverty alleviation strategy is necessary to protect and support society’s most vulnerable,” he said.

“We will undertake a comprehensive review of administered prices, including the fuel price formula, to identify areas where prices can be reduced.”