According to the director of the fuel pricing mechanism, Robert Maake, the Department of Mineral and Petroleum Resources is reviewing the local fuel price mechanism, with the process to be completed in March 2027.
Maake explained that the price of fuel is the result of a multitude of global and domestic forces ranging from the fluctuating price of crude oil and the strength of the Rand to the intricate costs of shipping, storage, and a series of government levies and taxes.
“Our pricing formula is based on two components," said Maake.
"One of them is the import part, where all the costs associated with importing petroleum products into South Africa are accounted for.
“The second part is the local factor. What changes every month is the international component, driven mainly by the oil price and the Rand-Dollar exchange rate.
"What is happening now is the very high oil price due to the war in the Middle East, which is driving the (escalating) fuel prices and the weaker Rand,” he said.
While international factors, including Brent crude oil prices, demurrage rates, and freight costs, are set internationally, local factors are under consideration.
“The main one for us in the department is the review of the fuel price mechanism," explained Maake.
"What we are going to do now is review how industry margins are calculated in South Africa: the wholesale margins, retail margins, secondary storage (and) secondary distribution.
“That process has started. We have already signed a service level agreement with a service provider, and we expect that work to be concluded by March 2027,” Maake revealed.
In the immediate term, the government has already announced the temporary reduction of the general fuel levy by R3 to cushion consumers.
“In the short term, it means that consumers are actually paying R3 less for petrol and diesel at the service stations, which is useful for households and motorists.
"It's difficult at the moment to say how government will intervene (in the long term) and what the next step will be,” Maake said.
The paraffin price
Turning to the price of paraffin, Maake explained the factors that paved the way for the fuel source to increase by R11.67 at wholesale and by some R15.60 at the single maximum national retail price for illuminating paraffin.
“Paraffin is not taxed, so the relief measure was to reduce the fuel levy, and there's no fuel levy on paraffin.
"It's already zero-rated, so the same cannot be applied to paraffin. We need a different mechanism for paraffin.
“The reason why paraffin has almost doubled in price is that, from a refinery production point of view, paraffin and jet fuel, when they come from the refinery, are known as dual-purpose kerosene; it depends on the final use at the end of the day.
“The challenge we had was that there was a demand for air travel last month globally, particularly in Europe, where they were coming from their winter season to…where they wanted to travel.
"Unfortunately, because of the winter, some of the major refineries had closed down due to the very cold winter season, where they could not operate.
"There was a shortage of jet fuel, and as a result, both the price of jet fuel and paraffin shot up,” Maake explained.
He added that, despite these factors, the department is having “sleepless nights” over how to provide relief to consumers of paraffin.
“We're looking at what other mechanisms we can propose.
"The first one of zero rating is fine because there are no taxes on paraffin, but what is the next one?
"Maybe we can look at the indigent framework where paraffin users register and get direct support from government?
“(Also) the bulk of paraffin is used in mixing with diesel by some businesspeople.
"It’s important that whatever form of support that government comes up with is targeted to the beneficiaries,” he said.
Gassed up
Ahead of last week's price increase, reports of fuel shortages emerged at some service stations.
“What we have seen…is something that we have never seen before. Particularly, the magnitude of the fuel price increase.
"What likely happened is that some of the commercial customers were trying to buy in bulk in anticipation of the high fuel prices.
"They were placing additional orders on top of the orders they had with the suppliers.
“But also, there were complaints that some service stations were running out of fuel, and people were thinking that they were hoarding fuel until the new price kicks in. That was a big challenge for us.
“However, we just came from the long weekend and from the reports that we are getting, there was not a lot of reports from provinces that they were running out of fuel,” he said.
Maake reiterated assurances that supply to South Africa remains stable despite reports to the contrary.
“In as far as supply is concerned, we are safe and secure. In the meetings we are having with the oil companies, they have indicated the number of vessels they have secured and confirmed that they will be coming to the country, even up to the end of May.
"And from time to time, when the vessels come, then they will place additional orders.
“We have daily meetings with the oil companies and people who are responsible for supply in the oil companies. That's why they give us assurance in terms of the supply that they are bringing to the country.
“The director-general (Jacob Mbele) himself has meetings with the CEOs of oil companies once a week.
"That's assurance to say that the department, together with the industry, is taking the issue of supply seriously and monitoring it regularly,” he said.
