Every month the fuel price adjustment is announced and motorists brace for impact at the pumps. But how exactly is that rand per litre amount made up? We break it down
There is an old adage that states ‘what goes up must come down’ and while that will always apply where gravity is involved, it certainly doesn’t appear to apply to the price of fuel. Every month there is an adjustment, almost inevitably upwards – certainly the ups outweigh the downs. But not all of what we pay at the pumps is directly attributable to the cost of providing fuel at the nozzle. Between 35 and 40%, depending on inland or coastal figures, goes towards levies, not all motoring related. And for a country that relies so heavily on road transport for private, business and the supply of goods, the effect is far reaching.
By now we have come to terms with the heavy 52c per litre additional levy imposed by the former Finance Minister Malusi Gigaba in his budget speech in February, but which only came into effect at the beginning of April. This at least was a fixed amount, but when strengthening international petroleum prices and the fluctuating, and occasionally volatile, rand/US dollar exchange rate comes into play, we are at the mercy of the fuel companies.
To understand how the fuel price is comprised, the Automobile Association (AA) recently published a fuel price breakdown that shows just how the cost of a litre of petrol – 93 octane unleaded (inland) and 95 octane (coastal) – is determined. The purpose of the breakdown was to educate the public as to why a litre of petrol costs what it does, and where the revenue is being spent.
The fuel price is comprised of four main elements. These are:
• The General Fuel Levy
• The Road Accident Fund Levy (RAF)
• The Basic Fuel Price (freight and insurance costs, cargo dues, storage and financing)
• Wholesale and retail margins plus distribution and transport costs.
At the beginning of April 2018, motorists across the country paid between 69c and 72c more for a litre of petrol at the pumps. At the time this was principally due to the higher international petroleum price and the increased levy. The levy is in the form of two indirect taxes: the General Fuel Levy and the Road Accident Fund (RAF) Levy.
The General Fuel Levy is a tax charged on every litre of petrol sold and this year was increased by 22c over the 2017 figure – to R3.37 per litre. The money collected through this tax is administered by the National Treasury and is treated as a general tax and not, as many people assume, for road-related expenses.
Money collected through the RAF Levy portion is used to compensate victims of road accidents. This year, this figure was increased by 30c over the 2017 figure – to R1.93 per litre. Combined, the General Fuel Levy and the RAF Levy constitute R5.30 of every litre of fuel sold in the country. So, in using arbitrary figures, if a litre of fuel costs R14.23, then 38% of this amount is tax.
The Basic Fuel Price (BFP) is calculated based on costs associated with shipping petroleum products to South Africa from the Mediterrean area, Arab Gulf and Singapore. These costs include insurance, storage and wharfage (the cost to harbour facilities when off-loading petroleum products into storage). At the time of writing, the BFP is R5.81.
Other costs associated with the petrol price include transport costs from the harbour to inland areas, customs and excise duties, retail margins paid to fuel station owners, and secondary storage costs. These costs currently total R3.12 for inland petrol, and R2.78 for coastal petrol. Movements in these costs the past 16 months include an additional 10c per litre charge in transport for fuel from coastal areas to Gauteng, and an 11c per litre increase in the retail margin at both inland and coastal stations.
Using this data, as an example, filling a 50 litre tank with 93 unleaded petrol inland at R14.23 per litre will cost R711.50. This is made up of:
Fuel Levy R3.37 x 50 = R168.50 24%
RAF levy R1.93 x 50 = R 96.50 14%
Basic Fuel Price R5.81 x 50 = R290.50 40%
Associated costs R3.12 x 50 = R156.00 22%
While these ongoing increases affect monthly vehicle running costs of motorists, it also means general goods transport across the country has also become more expensive as operators seek to recover the increases by passing them on to consumers, who already have had to absorb a one percentage point increase in the Value Added Tax (VAT) rate in 2018. But as the AA warned back in April, any increase above inflation will hurt the poorest of the poor in the country because so many people rely on public transport, which also needs to recover significant increases by passing them on to consumers.