The petrol retail price is regulated by government and is adjusted every first Wednesday of the month. The calculation of petroleum product prices (petrol, diesel and illuminating paraffin) is done daily by the Central Energy Fund (CEF) on behalf of the Department of Mineral and Petroleum Resources (DMPR). The monthly fuel price adjustment is based on the average international fuel price and exchange rate over the preceding pricing period and is applied to the following month. As a result, South Africa's fuel prices lag international prices by approximately one month.
The petrol pump price is composed of several pricing elements, which can be divided into international and domestic components. The international component, known as the Basic Fuel Price (BFP) is, in its simplest form, based on the cost a South African importer would incur to purchase petrol from an international refinery and transport it to South African shores in compliance with local fuel specifications.
Government-regulated taxes, levies and allowable margins are then added to the BFP to determine the final pump price of petrol. This price structure also includes charges for NERSA's operations, as well as allowable distribution charges based on magisterial district zoning.
Wholesale petrol prices and diesel retail prices are not regulated. However, the Department of Mineral and Petroleum Resources (DMPR) publishes a wholesale list price for diesel, which serves as a reference price.
The Basic Fuel Price (BFP)
The Basic Fuel Price (BFP) represented a significant improvement in the way South Africa's fuel pricing system is linked to international markets and remains the basis of the country's fuel pricing methodology. The Department of Mineral and Petroleum Resources (DMPR), formerly the Department of Energy (DOE), periodically reviews the BFP methodology to ensure that the underlying assumptions remain relevant and appropriate. As long as fuel prices remain regulated, it is prudent that the pricing mechanism continues to reflect international market conditions.
The cost of shipping and other import-related expenses is added to the international product price to determine the landed cost. The resulting US dollar-denominated Basic Fuel Price is then converted into rand using the prevailing US dollar/rand (US$/R) exchange rate at 11:00 South African time each day.
The principal difference between the BFP and the former In-Bond Landed Cost (IBLC) methodology is that the BFP is based on daily spot prices quoted in specified international trading markets. In contrast, the IBLC relied on refinery gate posted prices, which were found not to accurately reflect prevailing international market prices.
The spot prices used are:
- For petrol: 50% Mediterranean/50% Singapore.
- For diesel and paraffin: 50% Mediterranean/50% Arabian Gulf.
- For paraffin: 50% Mediterranean/50% Arabian Gulf.
The Fuel Pricing System
The prices of regulated petroleum products are determined by two primary components:
- External factors: The international (US dollar) price of petroleum products in global markets, multiplied by the prevailing US dollar/rand (US$/R) exchange rate.
- Internal factors: Rand-denominated costs, including retail and oil company marketing margins, transport costs, taxes and levies.
External factors fluctuate continuously and account for most of the monthly changes in fuel prices. Both the international oil price and the exchange rate are determined by global market forces and are therefore beyond the control of the industry. Under the Monthly Pricing System, regulated fuel prices are adjusted on the first Wednesday of each month to reflect changes in these external factors.
When the internal pricing components are revised, typically once a year, these adjustments are incorporated into the relevant monthly fuel price determination.
Changes to the rand-based components (internal factors) are subject to government regulation. These include adjustments to taxes and levies, transport costs, wholesale margins, retail margins and service costs.
The primary objective of regulating fuel prices and margins is to ensure that all participants in the petroleum value chain earn fair and sustainable returns. These returns should be sufficient to encourage the investment required to maintain and develop the industry, while avoiding excessive returns, or over-reward.
Media roundtable price adjustments