Chemical Technology

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18 Chemical Technology • November 2015
FOCUS ONPETROCHEMICALS
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 busi-
nesses, 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.
This resentment is understandable, es-
pecially 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 na-
tional fuel pricing model is, however, defined
by industry jargon that leaves the public
unsure of where their money is being spent.”
According to Nkadimeng, the two most
prominent variables in determining the fuel
price are the US$ price of crude oil, and
the Rand’s 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 indicative 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 US$, 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.
What’s more, the cargo must also be insured when in transit. This
is calculated at 0,15 % 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 transported 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 % of the
fuel retail price. Other factors that determine the fuel price are
the wholesale margin that distributors are allowed to add to the
wholesale price. This currently stands at 64 c/ℓ. The next is the
dealer margin, which currently stands at 155 c/ℓ. These margins
are adjusted annually and approved by the Minister of Energy.
It may seem unfair, at face value, that wholesalers and retailers
are entitled to add a total of R2, 19 per litre to the price of fuel
for their ‘gain’. Nkadimeng stresses that these margins are in fact
extremely low, and there is very little room for negotiations. “It is
important to bear in mind that these margins do not go straight
into the pockets of wholesalers and retailers.”
“Most people learn the newly-adjusted price of petrol a few days
before the Department of Energy makes the official announcement.
In my opinion, more focus should be placed on the predicted future
pump price of petrol from various news outlets – which regularly
give the price and gold and crude oil, but the indicative price of
petrol is far more important to the average South African.”
For more information contact Tseke Nkadimeng on tel +27 11 911
4280/4, email: or go to .
Fuel price is down – but how is the national price determined?