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IN A comparison of gasoline (petrol) prices per country, South Africans might think that we are paying exorbitant prices. But is this actually so?
One company, which delivers business and financial information, news and insight around the world, conducted just this comparison. In terms of price, South Africa ranks 42nd out of 61 countries, which is not too bad considering we fall just outside the lowest third.
If the price is not an issue, the “Unaffordability” and “Income spent” certainly is. In terms of unaffordability, South Africa ranks 10th and in terms of income spent, we rank first. South Africans spend an average of 4.62% of their income on petrol per annum. More specifically and on average, it takes 28% of a day’s wages to buy a gallon of gas (1 gallon is equivalent to 3.78541 litres).
This high percentage is attributed to the recent increases set by the Central Energy Fund (CEF), a state-owned entity that sets the local price of fuel. Given that petrol price increases appear to have minimal correlation with the price of crude oil, I have wondered for a while what exactly the CEF considers when determining the price of petrol locally. This is what I found:
According to the Department of Energy, the price is directly linked to the price of petrol quoted in US dollars at petroleum export-orientated refining centres in the Mediterranean area, the Arab Gulf and Singapore.
This means the domestic price is influenced by (a) international crude oil prices, (b) international supply and demand balances for petroleum products and (c) the rand/US dollar exchange rate.
In other words, the basic fuel price (BFP) is based on what it would cost a South African importer of petrol to buy the petrol from an international refinery, transport the product from that refinery, insure the product against losses at sea and land the product on South African shores.
The BFP further means that South African refineries are price-takers.
In addition, there is a long list of international and domestic factors that influence the price we as consumers eventually end up paying. The list is quite lengthy and so I refer you to the above link if you are interested.
From all of this, it seems as though our government has little control over the price we pay for petrol – apart of course from the fuel levy and the road accident fund levy. In a 2012 publication, the South African Petroleum Industry Association (Sapia) reports that the BFP constitutes 58.8% of the price we pay (remember that government has no control over this).
What government can control is the levies and taxes, which constitute 25.5% of the fuel price in total. Of the 25.5%, the fuel levy makes up 16.2% and the road accident fund levy 7.2%. Given that the fuel price has a significant impact on inflation (which is now at 6.6%), one wonders if such significant levies and taxes are necessary.
For all in Gauteng, for example, where the e-tolls system is intended to provide money for road infrastructure, could government not decrease the levies and taxes to accommodate the myriad of road users? This might also provide an incentive for Gauteng road users to comply with the much-opposed tolling system.
For the country as a whole, decreasing the levies and taxes will make petrol more affordable and lower the portion of income spent on it for the majority of South Africans.
While government cannot control the BFP, it can diminish the burden fuel is for us all and, in so doing, help control inflation.
- Fin24
* Geoffrey Chapman is a guest columnist and trade policy expert at the SABS. Views expressed are his own.
One company, which delivers business and financial information, news and insight around the world, conducted just this comparison. In terms of price, South Africa ranks 42nd out of 61 countries, which is not too bad considering we fall just outside the lowest third.
If the price is not an issue, the “Unaffordability” and “Income spent” certainly is. In terms of unaffordability, South Africa ranks 10th and in terms of income spent, we rank first. South Africans spend an average of 4.62% of their income on petrol per annum. More specifically and on average, it takes 28% of a day’s wages to buy a gallon of gas (1 gallon is equivalent to 3.78541 litres).
This high percentage is attributed to the recent increases set by the Central Energy Fund (CEF), a state-owned entity that sets the local price of fuel. Given that petrol price increases appear to have minimal correlation with the price of crude oil, I have wondered for a while what exactly the CEF considers when determining the price of petrol locally. This is what I found:
According to the Department of Energy, the price is directly linked to the price of petrol quoted in US dollars at petroleum export-orientated refining centres in the Mediterranean area, the Arab Gulf and Singapore.
This means the domestic price is influenced by (a) international crude oil prices, (b) international supply and demand balances for petroleum products and (c) the rand/US dollar exchange rate.
In other words, the basic fuel price (BFP) is based on what it would cost a South African importer of petrol to buy the petrol from an international refinery, transport the product from that refinery, insure the product against losses at sea and land the product on South African shores.
The BFP further means that South African refineries are price-takers.
In addition, there is a long list of international and domestic factors that influence the price we as consumers eventually end up paying. The list is quite lengthy and so I refer you to the above link if you are interested.
From all of this, it seems as though our government has little control over the price we pay for petrol – apart of course from the fuel levy and the road accident fund levy. In a 2012 publication, the South African Petroleum Industry Association (Sapia) reports that the BFP constitutes 58.8% of the price we pay (remember that government has no control over this).
What government can control is the levies and taxes, which constitute 25.5% of the fuel price in total. Of the 25.5%, the fuel levy makes up 16.2% and the road accident fund levy 7.2%. Given that the fuel price has a significant impact on inflation (which is now at 6.6%), one wonders if such significant levies and taxes are necessary.
For all in Gauteng, for example, where the e-tolls system is intended to provide money for road infrastructure, could government not decrease the levies and taxes to accommodate the myriad of road users? This might also provide an incentive for Gauteng road users to comply with the much-opposed tolling system.
For the country as a whole, decreasing the levies and taxes will make petrol more affordable and lower the portion of income spent on it for the majority of South Africans.
While government cannot control the BFP, it can diminish the burden fuel is for us all and, in so doing, help control inflation.
- Fin24
* Geoffrey Chapman is a guest columnist and trade policy expert at the SABS. Views expressed are his own.
