Calculating South Africa’s Petrol Prices

Fuel Management

So much has changed in South Africa – and the world – over the course of 2020 and during the Covid-19 pandemic. One of the main points of discussion has been the wild fluctuations of fuel prices across the globe. Have you ever wondered how petrol prices are calculated and who works those numbers out?

Luckily, the Automobile Association (AA) has published a complete breakdown of South Africa’s petrol prices to clarify how they are calculated and where our money is going. Some combination of taxes, levies, shipping costs, exchange rates, crude oil prices and other costs are accounted to determine the purchasing price of the refined product: petrol.

The last few months have been extraordinarily unpredictable as a result of the pandemic, volatile oil prices and unstable economies and exchange rates. We have seen some truly wild decreases in fuel costs over the first half of this year. Unfortunately, we seem to have enjoyed the last of these spectacular price drops as petrol prices are beginning to normalise across the country and internationally.

The petrol price in South Africa is comprised of four main elements. These elements are the General Fuel Levy (GFL), the Road Accident Fund Levy (RAF), the Basic Fuel Price (BFP) and the associated transportation, distribution, customs and added costs of selling petrol.

A large share of South Africa’s petrol prices is made up of two kinds of tax. These taxes are the GFL and the RAF which play the most significant role in determining the cost of the fuel that we buy, according to the AA. Changes to these levy rates are usually announced every February, during the Finance Minister’s annual National Budget speech and are then enacted in April.

Together, the GFL (R3.77) and the RAF (R2.07) add up to R5.84 per litre which accounts for about half (48-50%) the cost per litre of all fuel purchased in this country. The GFL and RAF provide the government with about R135 billion in levies every year of which, R87 billion, goes directly to the Treasury.

The AA stated that the annual increases in these levies are consistently above normal inflation rates and, ultimately, hurt South Africa’s poorest citizens who rely on public transport which is greatly affected by every petrol price increase.

The third component that helps determine the price of fuel is the cost of the petrol itself as well as anticipated add-ons like freight and insurance costs, cargo dues, storage and other financing. These costs combined are referred to as the BFP – this has been the primary reason for the reduction in costs we have seen since the lockdown started.

“The Basic Fuel Price (BFP) is calculated based on costs associated with shipping petroleum products to South Africa from the Mediterranean Region, Arab Gulf and Singapore,” the AA said.

The final costs that are factored in are a combination of transportation costs, customs and excise duties, distribution fees and retail or wholesale margins charged by petrol station owners and distributors.

The petrol that we get from our local garage is processed overseas, shipping, customs and duties are paid and then the fuel is shipped to our harbours and transported to inland. This is what explains the difference in coastal and inland fuel prices as well as most of the transportation costs.

Moving and distributing to garages across the country, secondary storage needs and profit margins will dictate much of the rest of these costs. The AA suggested that these costs are currently totalled at R3.54 for inland petrol and R3.02 for coastal petrol for every litre sold.

So, the question remains: what is going on now?

The vast oversupply of fuel on the international market meant that, in April, petrol prices crashed in South Africa and around the world. Throughout May, the supply numbers and the costs have been normalising and it is expected that we will start seeing prices revert back to normal throughout June.

As the AA explained, “With economic activity slowly beginning to pick up worldwide, the cost of international petroleum is expected to also slowly increase. This will have a knock-effect on local prices which will also steadily increase.”

There has not been a time this good for South African motorists in years. The last time petrol prices got to this low-level was in 2016. Unfortunately for all of us, the petrol prices will continue to rise back to its ‘normal’, very expensive price as the local and global economy begins to open back up, as we try to leave this pandemic in the past.