Construction World February 2016

> MARKETPLACE

How is the national FUEL PRICE DETERMINED?

This resentment is understandable, especially if the public is not communicated to in a transparent manner. Afric Oil CEO Tseke Nkadimeng states that petrol prices have been regulated since the 1950s to ensure economic viability for the industry. “The national fuel pricing model is, however, defined by industry jargon that leaves the public unsure of where their money is being spent.” Major factors According to Nkadimeng, the two most prominent variables in deter- mining the fuel price are the USD price of crude oil, and the rand’s whose finances are directly affected by cost fluctuations. The fuel price is also an issue where the vast majority of the diverse population is united in opinion – welcoming price cuts, while resenting price hikes. > South Africa consumes on average more than two-billion litres of fuel per month. The pump price is therefore a contentious issue for the majority of individuals and businesses,

performance against the dollar. “Naturally, when oil prices rise and fall, so too does the petrol price. Exchange rate performance is also a major contributor, and the rand’s poor performance in recent months is indica- tive of the higher fuel prices.” Nkadimeng indicates that freight costs are also a determining factor. “Most of South Africa’s fuel is imported by ship from the Arab Gulf region. Approximately 20 percent of this amount is already refined, while the balance is refined at coastal and inland depots. The cost of freight is also priced in USD, and exchange rates once again play a central role,” he continues. These costs can be further compounded by demurrage, which is the penalty costs incurred by ships delayed in foreign ports. The cargo must also be insured when in transit. This is calculated at 0,15 percent of the fuel value and freight costs. “This is a reasonably fixed cost and should not fluctuate much month-to-month, however, millions of litres are trans- ported on each ship – making the cost quite substantial, especially with a weaker rand,” says Nkadimeng. Once these international costs have been dealt with, Nkadimeng reveals that local costs are enforced too. “Cargo dues are the costs associated with offloading the cargo at the harbour. The fuel is then held in coastal storage facilities, which charge around 2 c/ℓ per day with a maximum of 25 days storage. The cost of financial transactions and credit facilities also needs to be covered through stock financing, which is based on the landed cost values of refined petroleum, 25 days stock holding and prime interest rate minus two percent,” he explains. Government taxes and levies constitute up to 50 percent of the fuel retail price. Other factors that determine the fuel price are the wholesale

4

Afric Oil markets and sells diesel, petrol, paraffin and lubricants to parastatal organisations and industry.

CONSTRUCTION WORLD FEBRUARY 2016