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CONSTRUCTION WORLD
FEBRUARY
2016
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MARKETPLACE
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
How is the national
FUEL PRICE
DETERMINED?
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,
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.
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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
Afric Oil markets and sells diesel, petrol, paraffin and lubricants to parastatal organisations and industry.