Fuel price cut to be 'a few cents'

2012-04-05 00:00

CONSUMERS should not expect a dramatic cut in fuel prices once a review of the formula used to set fuel prices has been completed.

This was the emphatic view of economists who spoke to The Witness yesterday following the latest petrol price hike of 66 cents a litre.

The Department of Energy told The Witness yesterday that it would conduct and complete the review during the current (2012/13) financial year, but would not give details of how it would influence prices.

“We are not yet in a position to give completion dates as we have not yet begun the process,” said Thandiwe Maimane, Chief Director Communication at the Department of Energy.

The chief economist of economists.co.za, Mike Schüssler told The Witness that the best hope for consumers, motorists and commuters would be a 10 or 20 cents a litre reduction in the petrol price.

Schüssler said: “The best you can expect is a few cents here and there.

“The government simply does not have enough tax revenue from other sources to pull back on taxes relating to fuel.

“Furthermore, the external factors contributing to the price changes, like the crude oil price and the rand-dollar exchange rate, make up the majority of the total price.

The chief economist of Econometrix, Dr Azar Jammine told The Witness that the current monthly price change regime works very well.

“Changing the price on a monthly basis is better than the situation in the 1970s and 80s, when the price would stay constant for lengthy periods and then suddenly increase by a huge amount, literally overnight.

“This is a more market-related and stable system,” said Jammine.

He cited a case about 32 years ago when the petrol price was hiked by almost 70 percent in one day.

Jammine said that given the high levels of inequality and South Africa’s small tax base, the government had little option but to impose taxes on fuel in order to fund the spending priorities of the country.

“With so many bills for the government to pay, they cannot afford to take a lower cut on the tax side,” economist at the Efficient Group, Merina Willemse told The Witness.

The Democratic Alliance yesterday welcomed the move to review the formula.

However, the DA and the Inkatha Freedom Party said that the government should reduce its share of the petrol price by lowering the taxes and levies on fuel.

Although taxes on fuel have increased in recent years, Nedbank economist Isaac Matshego told The Witness that the government takes a reasonable cut in relation to the overall fuel price, especially by international standards.

While sympathising with consumers, the department stressed that external factors like global economics and geopolitics played a role in the price fluctuations.

The price for crude oil dropped by more than a dollar last night, to $123,56 (R967,31) a barrel, after the U.S. Energy Information Administration report showed that crude oil inventories rose 9,01 million barrels last week.

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